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[Federal Register Volume 89, Number 230 (Friday, November 29, 2024)]
[Notices]
[Pages 94801-94802]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-28058]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-101729]

Notice Pursuant to Rule 15c3-3a, Note H(b)(3) Regarding 
Application of the Customer Protection Rule Reserve Computations With 
Respect to U.S. Treasury Securities

AGENCY: Securities and Exchange Commission.

ACTION: Notice.

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SUMMARY: The Securities and Exchange Commission (``Commission'') is 
publishing notice that broker-dealers may include a debit in the 
customer protection rule reserve computations when depositing cash, 
U.S. Treasury securities, and/or qualified customer securities to meet 
a margin requirement of the Fixed Income Clearing Corporation 
(``FICC'') resulting from positions in U.S. Treasury securities of the 
customers of the broker-dealer.

FOR FURTHER INFORMATION CONTACT: Randall W. Roy, Deputy Associate 
Director; Raymond Lombardo, Assistant Director; or Sheila Dombal 
Swartz, Senior 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: 

I. Background

    On December 13, 2023, the Commission adopted rules under the 
Securities Exchange Act of 1934 (``Exchange Act'') to amend the 
standards applicable to covered clearing agencies for U.S. Treasury 
securities (``U.S. Treasury securities CCAs'') to enhance risk 
management practices for central counterparties in the U.S. Treasury 
market and facilitate additional clearing of U.S. Treasury securities 
transactions.\1\ The Commission also amended the formula for computing 
reserve account requirements under the broker-dealer customer 
protection rule.\2\ The amendments to the formula--which are set forth 
in Rule 15c3-3a--permit margin required and on deposit with a U.S. 
Treasury securities CCA to be included as a debit when computing 
reserve requirements with respect to customers and proprietary accounts 
of broker-dealers (``PAB''), subject to certain conditions.\3\ In 
particular, the amendments added Item 15 to the customer and PAB 
reserve computations on which to record the value of the debit and 
prescribed conditions--set forth in Note H to Item 15--for including 
the debit in the formulas.\4\ Each of the conditions in Note H needs to 
be met for a broker-dealer to include a debit equal to the amount of 
customer or PAB account holder margin required and on deposit at the 
U.S. Treasury securities CCA.\5\
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    \1\ See Standards for Covered Clearing Agencies for U.S. 
Treasury Securities and Application of the Broker-Dealer Customer 
Protection Rule With Respect to U.S. Treasury Securities, Exchange 
Act Release No. 99149 (Dec. 13, 2023), 89 FR 2714 (Jan. 16, 2024) 
(``Treasury Clearing Release'').
    \2\ See Treasury Clearing Release, 89 FR at 2760-68. See also 17 
CFR 240.15c3-3a (the formula for computing reserve requirements 
under the customer protection rule) (``Rule 15c3-3a''); 17 CFR 
240.15c3-3 (the customer protection rule) (``Rule 15c3-3''). Rule 
15c3-3 requires a broker-dealer to compute the net amount of cash 
owed to customers and PAB account holders under a formula in Rule 
15c3-3a (``customer and PAB reserve computations''). Generally, 
broker-dealers must perform their customer and PAB reserve 
computations and make any required deposits in a special reserve 
account at a bank weekly. See paragraph (e)(3) to Rule 15c3-3.
    \3\ See Treasury Clearing Release, 89 FR at 2760-68.
    \4\ See id. The amendments also modified Note B to Item 2 of the 
customer and PAB reserve computations to provide that this item in 
the reserve computations must include as a credit the market value 
of customers' and PAB account holders' securities on deposit at a 
U.S. Treasury CCA. See id. at 2761.
    \5\ See Treasury Clearing Release, 89 FR at 2760-68.
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    Certain of the conditions in Note H require the broker-dealer to 
take a number of steps with respect to the customer and PAB account 
holder margin in its custody.\6\ Other conditions provide that the U.S. 
Treasury securities CCA that will receive the customer or PAB account 
holder margin from the broker-dealer must have adopted rules--approved 
by the Commission--that require it to take certain steps with respect 
to calculating margin requirements and handling customer and PAB 
account holder margin received from the broker-dealer.\7\ The 
requirements of Note H are designed to permit the inclusion of the 
debit in the customer and PAB reserve computations

[[Page 94802]]

under conditions that ``provide maximum protection'' to the broker-
dealer's customers and PAB account holders and that do not diminish the 
customer protection objectives of Rules 15c3-3 and 15c3-3a.\8\
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    \6\ See Rule 15c3-3a, Note H(a) and (b)(1).
    \7\ See Rule 15c3-3a, Note H(b)(2).
    \8\ See Treasury Clearing Release, 89 FR at 2760.
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    Paragraph (b)(3) to Note H sets forth the final condition: that the 
Commission has approved rules of the U.S. Treasury securities CCA that 
meet the conditions of Note H and has published (and not subsequently 
withdrawn) a notice that broker-dealers may include a debit in the 
customer and/or PAB reserve computations when depositing cash, U.S. 
Treasury securities, and/or qualified customer securities to meet a 
margin requirement of the U.S. Treasury securities CCA resulting from 
positions in U.S. Treasury securities of the customers or PAB account 
holders of the broker-dealer.\9\ The Commission stated that its staff 
would analyze the U.S. Treasury securities CCA's approved rules and 
practices regarding the treatment of customer position margin and make 
a recommendation as to whether they adequately implement the customer 
protection objectives of the conditions set forth in Note H.\10\ If 
satisfied with the staff's recommendation, the Commission stated it 
will publish a positive notice.
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    \9\ See Rule 15c3-3a, Note H(b)(3).
    \10\ See Treasury Clearing Release, 89 FR at 2768.
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II. Notice

    On November 21, 2024, the Division of Trading and Markets, pursuant 
to delegated authority, approved proposed rule change SR-FICC-2024-007 
(``FICC rule change'').\11\ The FICC rule change, among other things, 
modifies FICC's Government Securities Division Rulebook to address the 
conditions of Note H of the customer and PAB reserve computations set 
forth in Rule 15c3-3a. FICC expects to implement the FICC rule change 
by no later than March 31, 2025, and will announce the effective date 
of the FICC rule change by an Important Notice posted to FICC's 
website.\12\ The staff has analyzed the FICC rule change and made a 
recommendation to the Commission that it adequately implements the 
customer protection objectives of the conditions set forth in Note H.
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    \11\ See Exchange Act Release No. 101695 (Nov. 21, 2024). FICC 
also filed this proposed rule change as an Advance Notice (File No. 
SR-FICC-2024-802) with the Commission pursuant to Section 806(e)(1) 
of Title VIII of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act entitled the Payment, Clearing, and Settlement 
Supervision Act of 2010, 12 U.S.C. 5465(e)(1), and Rule 19b-
4(n)(1)(i) under the Exchange Act, 17 CFR 240.19b-4(n)(1)(i). On 
Nov. 21, 2024, the Commission issued a Notice of No Objection to 
Advance Notice SR-FICC-2024-802.
    \12\ See File No. SR-FICC-2024-007.
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    Accordingly, the Commission is publishing this notice to advise 
broker-dealers that they may include a debit in their customer and/or 
PAB reserve computations when depositing cash, U.S. Treasury 
securities, and/or qualified customer securities to meet a margin 
requirement of FICC resulting from positions in U.S. Treasury 
securities of the customers of the broker-dealer.\13\ Any changes to 
the relevant FICC rules and practices that would undermine these 
customer protection objectives could result in the Commission 
withdrawing this notice, at which point a broker-dealer could no longer 
include the debit in the customer and/or PAB reserve computations.
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    \13\ See supra note 5 and accompanying text (discussing Note H 
conditions).

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    By the Commission.

    Dated: November 25, 2024.
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-28058 Filed 11-27-24; 8:45 am]
BILLING CODE 8011-01-P
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