`[Federal Register Volume 90, Number 7 (Monday, January 13, 2025)]
[Rules and Regulations]
[Pages 2790-2839]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-31178]



[[Page 2789]]

Vol. 90

Monday,

No. 7

January 13, 2025

Part II





Securities and Exchange Commission





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17 CFR Parts 240 and 249





Daily Computation of Customer and Broker-Dealer Reserve Requirements 
Under the Broker-Dealer Customer Protection Rule; Final Rule

  Federal Register / Vol. 90 , No. 7 / Monday, January 13, 2025 / Rules 
and Regulations  

[[Page 2790]]


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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 240 and 249

[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.

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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:

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           Commission reference                 CFR citation (17 CFR)
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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.
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Table of Contents

I. Introduction
    A. The Need For Daily Reserve Computations
    B. Overview of the Final Amendments
    C. Overview of Rule 15c3-3 and Broker-Dealer Liquidations
    1. Overview of Rule 15c3-3
    2. Overview of Broker-Dealer Liquidations and SIPA
II. Discussion of Comments and Final Amendments
    A. Requirement To Perform a Daily Computation
    1. Proposal
    2. Comments Received and Final Amendments
    B. Compliance With Daily Reserve Computation After Exceeding 
$500 Million Threshold
    1. Proposal
    2. Comments Received and Final Amendments
    C. Reducing the Aggregate Debit Reduction From 3% to 2%
    1. Amendments to Rules 15c3-1 and 15c3-3
    2. Conforming Amendments to the FOCUS Report
    D. Voluntary Customer and PAB Reserve Computations
    E. Other Comments
    1. Sweep Programs and Other ``Cash in Motion'' or ``Transitory'' 
Credits''
    2. Requests for Interpretations and Clarifications
    F. Reserve Account Requirements for Security-Based Swaps
III. Compliance Date
IV. Economic Analysis
    A. Introduction
    B. Baseline
    1. Regulatory Baseline
    2. Affected Broker-Dealers
    3. Debit Reduction in the Customer Reserve Computation for 
Certain Broker-Dealers
    C. Economic Effects of the Final Amendments
    1. Benefits
    2. Costs
    3. Other Compliance Costs
    D. Effects on Efficiency, Competition, and Capital Formation
    E. Reasonable Alternatives
    1. Over-Funding of the Customer and PAB Reserve Bank Accounts
    2. A Threshold Based on a Different Metric
    3. Daily Computation Requirement for All Carrying Broker-Dealers
    4. A Higher or Lower Threshold for Daily Computation
    5. Calculation Based on the Maximum Value Over the Past Year
    6. Daily Computation if an Average Required Deposit Exceeds a 
Threshold
    7. Daily Computation Requirement Based on Average Total Credits 
per Number of Customer and PAB Accounts
    8. Daily Computation Based on Average Total Credits From the 
Most Recent Calendar Year
    9. Reduction of the Aggregate Debit Items Charge From 3% to 1%
    10. Exemption for Cash in Motion
V. Paperwork Reduction Act
    A. Summary of Collections of Information Under the Final 
Amendments
    B. Use of the Information
    C. Respondents
    1. Recordkeeping Requirements
    2. Notification Requirement To Revert to Weekly Computations
    3. Notification Requirement To Voluntarily Perform Daily 
Customer Reserve Computation With 2% Debit Reduction
    D. Total Annual Burden Estimate
    1. Recordkeeping Requirements
    2. Notification Requirement To Revert to Weekly Computations
    3. Notification Requirement To Voluntarily Perform Daily 
Customer Reserve Computation With 2% Debit Reduction
    4. Summary of the Burden Revisions
    E. Collections of Information Are Mandatory
    F. Confidentiality of Response to Collections of Information
    G. Retention Period for Recordkeeping Requirements
VI. Regulatory Flexibiliy Act Certification
VII. Other Matters
Statutory Authority

I. Introduction

A. 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

[[Page 2791]]

provides, in pertinent part, that the rules and regulations shall 
require the maintenance of reserves with respect to customers' deposits 
or credit balances.\2\
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    \1\ 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''). Public Law 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.
    \2\ 15 U.S.C. 78o(c)(3)(A).
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    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 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\
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    \3\ 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'').
    \4\ See section I.C.1. of this release (discussing Rule 15c3-3).
    \5\ 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).
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    In order to facilitate an orderly self-liquidation, Rule 15c3-3 
requires a carrying broker-dealer 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, 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\
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    \6\ 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'').
    \7\ 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.
    \8\ 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.
    \9\ 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 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'').
    \10\ See section I.C.1. of this release (discussing Rule 15c3-
3).
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    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 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.
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    \11\ 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.
    \12\ See Proposing Release, 88 FR at 45842.
    \13\ See id.
    \14\ See id.
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    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

[[Page 2792]]

2023 calendar year, the top ten additional required deposits to the 
customer reserve bank accounts for the 20 carrying broker-dealers 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\
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    \15\ This data is based on the 25 largest additional deposit 
requirements reported in the monthly FOCUS Reports filed during the 
2023 calendar year.
    \16\ 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 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.
    \17\ See section IV.B.2. in this release (discussing scope of 
affected entities in the economic baseline).
    \18\ 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.
    \19\ See section II.A. of this release (describing the final 
$500 million threshold).
    \20\ 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.
    \21\ See section IV.B.2. of this release (discussing average 
mismatches).
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    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 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 broker-dealer, 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.
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    \22\ See Proposing Release, 88 FR at 45843.
    \23\ See id. at 45842.
    \24\ 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).
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    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 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\
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    \25\ See section I.C.2. of this release (discussing the SIPC 
Fund).
    \26\ 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 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).
    \27\ See Proposing Release, 88 FR at 45842.
    \28\ See Proposing Release, 88 FR at 45848. See also section 
IV.A. of this release (discussing potential risks that an intra-week 
mismatch introduces).
    \29\ See section IV.A. of this release (discussing potential 
risks that an intra-week mismatch introduces).
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    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 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 
broker-dealer'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\
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    \30\ 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).
    \31\ See Proposing Release, 88 FR 45842-43, 45848.
    \32\ See paragraph (e)(3)(iv) of Rule 15c3-3.
    \33\ See supra note 16 (citing data related to the 25 largest 
withdrawals from customer and PAB reserve bank accounts for the 
calendar year 2023).
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    In sum, the daily reserve computations--by protecting customer and 
PAB cash more quickly than is the

[[Page 2793]]

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.

B. 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\
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    \34\ See Proposing Release.
    \35\ Comment letters on the Proposing Release are available at 
https://www.sec.gov/comments/s7-11-23/s71123.htm.
    \36\ See section II.C. of this release (describing this 
modification in more detail).
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    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\
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    \37\ See paragraph (e)(3)(i)(A)(1) of Rule 15c3-3, as amended.
    \38\ See id.
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    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.
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    \39\ See id.
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    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\
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    \40\ See id.
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    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\
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    \41\ See paragraph (e)(3)(i)(B)(2) of Rule 15c3-3, as amended.
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    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.
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    \42\ See section I.C.1. of this release (describing these 
provisions of the Rule 15c3-1 in more detail).
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    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 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%.
---------------------------------------------------------------------------

    \43\ See paragraph (a)(1)(ii)(A) of Rule 15c3-1, as amended and 
paragraph (e)(3)(v) of Rule 15c3-3, as amended.
    \44\ See paragraph (e)(3)(v) of Rule 15c3-3, as amended.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \45\ See section III. of this release (discussing the compliance 
date).
    \46\ See id.
---------------------------------------------------------------------------

    Reserve Account Requirements for Security-Based Swaps--The 
Commission is not adopting any changes to the reserve account 
requirements for security-based swaps.

[[Page 2794]]

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

1. 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 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 broker-dealer 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\
---------------------------------------------------------------------------

    \47\ 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.
    \48\ See section I.C.2. of this release (discussing broker-
dealer liquidations under SIPA).
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \49\ See paragraph (b) of Rule 15c3-3; Proposing Release, 88 FR 
at 45838.
    \50\ 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.
    \51\ 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 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-dealer-custody-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.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \52\ See Rule 15c3-3a.
    \53\ See paragraph (e)(3)(iv) of Rule 15c3-3.
    \54\ See paragraph (e)(3)(i) of Rule 15c3-3.
---------------------------------------------------------------------------

    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 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\
---------------------------------------------------------------------------

    \55\ See Rule 15c3-3a.
    \56\ See Rule 15c3-3a, Items 1-9; Proposing Release, 88 FR at 
45838.
    \57\ See Rule 15c3-3a, Items 10-15.
    \58\ See paragraph (e) of Rule 15c3-3.
    \59\ 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.
    \60\ See paragraph (e) of Rule 15c3-3.
    \61\ 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).
---------------------------------------------------------------------------

    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 
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

[[Page 2795]]

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\
---------------------------------------------------------------------------

    \62\ See paragraph (e)(2) of Rule 15c3-3; Rule 15c3-3a.
    \63\ See Proposing Release 88 FR at 45839, n.22.
---------------------------------------------------------------------------

    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 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\
---------------------------------------------------------------------------

    \64\ 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).
    \65\ 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 
51827-31 (adopting a PAB reserve computation and possession and 
control requirements for securities held in PAB accounts under Rule 
15c3-3).
    \66\ See paragraph (e)(3) of Rule 15c3-3; Proposing Release, 88 
FR at 45839-40.
    \67\ See paragraph (e)(2) of Rule 15c3-3.
---------------------------------------------------------------------------

2. 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., broker-dealers that cannot return 
these assets through a self-liquidation).\70\
---------------------------------------------------------------------------

    \68\ See 15 U.S.C. 78aaa et seq.
    \69\ See 15 U.S.C. 78ccc(a)(1) and 78ddd(a)(1).
    \70\ 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.
---------------------------------------------------------------------------

    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 
on the customer property compared to general unsecured creditors of the 
carrying broker-dealer.\71\
---------------------------------------------------------------------------

    \71\ 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).
---------------------------------------------------------------------------

    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 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:
---------------------------------------------------------------------------

    \72\ 15 U.S.C. 78fff-3.
    \73\ 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.
    \74\ 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 fifty-three 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.
    \75\ 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.
    \76\ 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.
    \77\ 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.

[[Page 2796]]



                    Table 1--SIPC Assessment Schedule
------------------------------------------------------------------------
   Unrestricted net assets/SIPC Fund
                balance                       Annual assessment rate
------------------------------------------------------------------------
Unrestricted net assets $2.5-<$5         0.15% of net operating
 billion (and reasonably likely to        revenues.
 remain less than $5 billion but not
 less than $2.5 billion).
SIPC Fund balance of $150 million--      0.25% of net operating
 unrestricted net assets of <$2.5         revenues.
 billion.
SIPC Fund balance $100 million-<$150     Determined by SIPC, but not
 million.                                 less than 0.25% of gross
                                          revenues.
SIPC Fund balance below $100 million...  Determined by SIPC, but not
                                          less than 0.5% of gross
                                          revenues.
Unrestricted net assets >=$5 billion     SIPC may not more than once in
 (and reasonably likely to remain >$5     any four-year period, increase
 billion (after review of study * and     or decrease the assessment
 consultation with Commission and         rate by up to, but not more
 SROs)).                                  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.

II. Discussion of Comments and Final Amendments

A. Requirement To Perform a Daily Computation

1. 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 broker-dealer 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 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\
---------------------------------------------------------------------------

    \78\ See section I.A. of this release (discussing the need for 
daily reserve computations); Proposing Release, 88 FR at 45843.
    \79\ 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.
    \80\ 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.
    \81\ 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.
    \82\ 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.
    \83\ See Proposing Release, 88 FR at 45844, n.79.
    \84\ See Proposing Release, 88 FR at 45844, n.80.
---------------------------------------------------------------------------

2. 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\
---------------------------------------------------------------------------

    \85\ 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).
    \86\ See Letter from Joseph (Sept. 8, 2023); Golden DOGE (Sept. 
9, 2023).
    \87\ See Letter from Christopher A. Iacovella President & CEO, 
American Securities Association (Sept. 11, 2023) (``ASA Letter'') at 
4.
---------------------------------------------------------------------------

    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 
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\
---------------------------------------------------------------------------

    \88\ See section II.C.2. of this release (discussing broker-
dealer liquidations and SIPA).
    \89\ See section I.A. of this release (discussing the need for 
daily reserve computations); section IV.B.2. of this release 
(discussing average mismatches).
---------------------------------------------------------------------------

    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 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.

[[Page 2797]]

    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 broker-dealers 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 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 broker-
dealers 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\
---------------------------------------------------------------------------

    \90\ See Letter from Kevin Zambrowicz, Deputy General Counsel 
(Institutional) & Managing Partner, SIFMA (Sept. 11, 2023) (``SIFMA 
Letter) at 6-7.
    \91\ See id.
    \92\ See ASA Letter at 5.
    \93\ 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.
    \94\ 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 3.
---------------------------------------------------------------------------

    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 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\
---------------------------------------------------------------------------

    \95\ 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 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.
    \96\ See Better Markets Letter at 8.
    \97\ See id at 8-9.
---------------------------------------------------------------------------

    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 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.
---------------------------------------------------------------------------

    \98\ 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).
    \99\ 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.
    \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.
---------------------------------------------------------------------------

    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 broker-dealers above the $500 Million Threshold as 
compared to carrying broker-dealers below the 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.
---------------------------------------------------------------------------

    \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.
    \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.
---------------------------------------------------------------------------

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

[[Page 2798]]

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 
broke/r-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.
---------------------------------------------------------------------------

    \108\ This estimate is based on FOCUS Report data for calendar 
year 2023.
---------------------------------------------------------------------------

    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 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 self-liquidate (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 broker-dealer 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 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.
---------------------------------------------------------------------------

    \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).
    \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).
---------------------------------------------------------------------------

    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 broker-dealers with relatively less customer 
and PAB account activity.\118\ Thus, it would

[[Page 2799]]

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 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.
---------------------------------------------------------------------------

    \117\ The commenter also stated that applying the daily reserve 
computation requirement to all carrying broker-dealers 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 broker-dealers as a 
reasonable alternative).
    \119\ See id.
    \120\ See section II.C. of this release (describing the 2% 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 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\
---------------------------------------------------------------------------

    \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.
    \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 broker-
dealers from having to develop infrastructure and hire regulatory 
staff to perform a customer and PAB reserve computation daily. See 
ASA Letter at 5.
---------------------------------------------------------------------------

    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 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.
---------------------------------------------------------------------------

    \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.
    \127\ See section I.A. of this release (describing the need for 
daily reserve computations).
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

    Another commenter stated that the Commission should adopt a 
separate $250 million threshold requirement for the customer and PAB 
reserve computations, to allow carrying broker-dealers 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 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

[[Page 2800]]

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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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 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.
---------------------------------------------------------------------------

    \133\ See Proposing Release, 88 FR at 45842.
---------------------------------------------------------------------------

    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 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\
---------------------------------------------------------------------------

    \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.
    \136\ See section I.A. of this release (discussing the need for 
daily reserve computations).
---------------------------------------------------------------------------

    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).
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

    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\ 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\
---------------------------------------------------------------------------

    \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.
    \140\ See Whitehurst Letter; Anonymous Letter (Aug. 21, 2023).
    \141\ See Whitehurst Letter; Cory Letter.
---------------------------------------------------------------------------

    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.

B. Compliance With Daily Reserve Computation After Exceeding $500 
Million Threshold

1. 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

[[Page 2801]]

proposed rule text was to provide time for a carrying broker-dealer to 
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\
---------------------------------------------------------------------------

    \142\ See Proposing Release, 88 FR at 45844.
    \143\ See id.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \144\ See Proposing Release, 88 FR at 45844-45.
    \145\ See Proposing Release, 88 FR at 45845.
---------------------------------------------------------------------------

2. 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 the proposed $250 Million 
Threshold.\146\ As discussed below in this section, the Commission 
received several comments regarding the proposed compliance period.
---------------------------------------------------------------------------

    \146\ See id. at 45845-46.
---------------------------------------------------------------------------

    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\
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    \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.
---------------------------------------------------------------------------

    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 
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 
broker-dealers 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\
---------------------------------------------------------------------------

    \151\ See NASAA Letter at 3.
    \152\ See id.
    \153\ See id. at 3-4.
---------------------------------------------------------------------------

    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

[[Page 2802]]

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 performed customer and PAB 
reserve computations daily is unlikely to require six months to 
reinstate procedures previously in effect.\154\
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    \154\ See SIPC Letter at 2.
---------------------------------------------------------------------------

    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 six-month compliance period is appropriate in 
this case.
    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.
---------------------------------------------------------------------------

    \155\ For example, based on FOCUS Report data for the 2023 
calendar year, there were three carrying broker-dealers 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.
---------------------------------------------------------------------------

    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 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.
---------------------------------------------------------------------------

    \158\ See paragraph (e)(3)(i)(B)(1) and (2) of Rule 15c3-3, as 
amended.
---------------------------------------------------------------------------

C. Reducing the Aggregate Debit Reduction From 3% to 2%

1. 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-to-1 aggregate indebtedness to net capital ratio (basic 
method) or the 2% of aggregate debit items 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 broker-dealers use the 
alternative method, including the 49 carrying broker-dealers that

[[Page 2803]]

exceeded the $500 Million Threshold for calendar year 2023.\164\
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    \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.
    \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).
---------------------------------------------------------------------------

    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 
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.
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    \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).
    \167\ See Financial Responsibility Rules for Broker-Dealers, 78 
FR at 51858.
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    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 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\
---------------------------------------------------------------------------

    \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.
    \170\ See Raymond James Letter at 2.
    \171\ See id.
    \172\ See id.
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    Commenters suggested eliminating the 3% debit reduction that 
applies to carrying broker-dealers using the alternative method. This 
would then subject these carrying broker-dealers 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 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 broker-dealers were subject to capital requirements promulgated 
by their respective exchanges. The 1972 proposed amendments--among 
other things--would apply Rule 15c3-1 to all broker-dealers (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.
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    \173\ See Rule 15c3-3 Adopting Release, 37 FR at 25229.
    \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.
---------------------------------------------------------------------------

    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 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

[[Page 2804]]

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 broker-dealer's 
ability to finance its customer-related receivables.\181\
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    \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)].
    \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 self-regulatory 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.
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    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 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\
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    \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)].
    \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.
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    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 15c3-3 
(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 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.
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    \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.
---------------------------------------------------------------------------

    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 broker-dealer's customer reserve bank account.\188\ A daily 
computation requirement allows for cash 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 broker-dealer 
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.
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    \188\ See table 5, panel C in section IV. of this release.
---------------------------------------------------------------------------

    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\

[[Page 2805]]

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 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.
---------------------------------------------------------------------------

    \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.
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    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\
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    \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 Sec.  240.15c3-3(e) and set forth in 
Exhibit A, Sec.  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.
---------------------------------------------------------------------------

    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 
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 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.
---------------------------------------------------------------------------

    \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.
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    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 broker-dealers 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 broker-dealers.\198\
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    \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\
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    \199\ See section II.E.1. of this release (describing sweep 
programs and other transitory credits).

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[[Page 2806]]

2. 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-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.
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    \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.
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    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.

D. 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 
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\
---------------------------------------------------------------------------

    \201\ See Proposing Release, 88 FR at 45845.
    \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.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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 broker-dealers, 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 broker-dealers, 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\
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    \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.
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E. 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.
1. Sweep Programs and Other ``Cash in Motion'' or ``Transitory'' 
Credits''
    The Commission received two comments regarding sweep programs \211\

[[Page 2807]]

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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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 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 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\
---------------------------------------------------------------------------

    \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 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.
    \222\ See SIFMA Letter at 7; ASA Letter at 3; ASA Letter 2 at 1; 
ASA Letter 3 at 3.
---------------------------------------------------------------------------

    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 exclude from the customer and PAB reserve computations 
any funds that the carrying broker-dealer has swept or deposited 
promptly upon receipt.\225\
---------------------------------------------------------------------------

    \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.
    \225\ See id.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \226\ See ASA Letter 3 at 3.
---------------------------------------------------------------------------

    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

[[Page 2808]]

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 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.
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

    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 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.
---------------------------------------------------------------------------

    \229\ Customer securities are protected under the possession and 
control requirements under paragraphs (b) and (c) of Rule 15c3-3. 
See section I.C.1. of this release (discussing the possession and 
control requirements of Rule 15c3-3).
---------------------------------------------------------------------------

    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 broker-dealer 
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 broker-dealer 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 broker-dealer 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-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.
---------------------------------------------------------------------------

    \230\ See SIFMA Letter at 7; ASA Letter at 2; ASA Letter 2 at 1.
---------------------------------------------------------------------------

    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

[[Page 2809]]

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\
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    \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).
---------------------------------------------------------------------------

    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 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 result in an increased deposit requirement. This issue merits 
further consideration. However, any potential solution must not 
diminish customer protection and be practical. Further, attempting to 
develop an appropriate solution would be a complex undertaking and 
could affect a range of carrying broker-dealers depending on their 
business model, the types of accounts the carrying broker-dealer 
services, and the products offered in the carrying broker-dealer's 
sweep program. The Commission would need to assess many factors, for 
example, the amount of cash that would be considered large or unusual 
(i.e., not routine) on a particular business day, the size of cash 
inflows that typically may be received by the broker-dealer on the 
business days following a large or unusual cash inflow, the types of 
customer accounts or firm business models affected by unusual or large 
cash inflows (e.g., retail or institutional accounts), and the 
practices of carrying broker-dealers currently performing daily 
computations. For these reasons, the Commission is not excluding 
credits arising from unusual or large inflows of cash from a carrying 
broker-dealer's daily reserve computation at this time. The Commission 
encourages market participants to engage with Commission staff 
regarding their particular facts and circumstances on this issue.
    Finally, a commenter stated that if a carrying broker-dealer must 
use its own funds to make a required deposit because customer 
transitory credits are no longer available, it could result in 
commingling of carrying broker-dealer and customer assets and/or 
constitute a misuse of the special reserve account.\232\ In response, 
the commenter appears to have misunderstood the requirements of Rule 
15c3-3. Carrying broker-dealers may deposit their own cash and/or 
qualified securities in a customer or PAB reserve bank account to meet 
any minimum deposit requirements under Rule 15c3-3 or as an additional 
buffer above the minimum deposit amount. These deposits to the customer 
and PAB reserve bank accounts comply with the requirements of Rule 
15c3-3.\233\
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    \232\ See ASA Letter at 4.
    \233\ Customer cash is a balance sheet item of the carrying 
broker-dealer (i.e., the amount of cash received from a customer 
increases the amount of the carrying broker-dealer's assets and 
creates a corresponding liability to the customer). The customer 
reserve computation is designed to isolate these carrying broker-
dealer assets so that an amount equal to the net liabilities to 
customers is held as a reserve in the form of cash or U.S. 
Government securities. The requirement to maintain this reserve is 
designed to effectively prevent the carrying broker-dealer from 
using customer funds for proprietary business activities such as 
investing in securities. The goal is to put the carrying broker-
dealer in a position to be able to readily meet its cash obligations 
to customers by requiring the carrying broker-dealer to make 
deposits of cash and/or U.S. Government securities into the customer 
reserve bank account in the amount of the net cash owed to 
customers. See Proposing Release, 88 FR at 45838, n.17.
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2. Requests for Interpretations and Clarifications
    A commenter stated that the Commission should allow carrying 
broker-dealers to notify their DEA if they will be unable to perform a 
customer or PAB reserve computation or make a required deposit on a 
specific day due to exigent circumstances.\234\ The commenter stated 
that carrying broker-dealers occasionally face unexpected circumstances 
that could make it difficult or impossible to perform their reserve 
computation (or part of the computation) on a specific day, or to make 
the required deposit into the special reserve bank account.\235\ For 
example, the commenter stated that an unexpected market close (which 
could result from a systems outage or a natural disaster) could 
temporarily prevent personnel from accessing systems necessary to make 
the reserve computation; a bank may be unable to accept deposits due to 
a systems outage; or the failure of a third-party system may make it 
impossible for a carrying broker-dealer to access data necessary to 
compute some element of the reserve computation.\236\ The commenter 
further stated these events actually occur and provided an example of a 
significant processing issue that a large financial market utility had 
in 2023 that affected the ability of carrying broker-dealers to 
accurately calculate their end-of-day balances.\237\ The commenter 
stated that the problems such exigent circumstances cause often cannot 
be resolved in a day, and because these events are beyond the carrying 
broker-dealer's control, the Commission should not penalize a carrying 
broker-dealer for its inability to perform the reserve computation or 
make a required deposit on a particular day because of them.\238\
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    \234\ See SIFMA Letter at 8-9.
    \235\ See SIFMA Letter at 8.
    \236\ See SIFMA Letter at 8.
    \237\ See id.
    \238\ See id.
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    More specifically, in order to address situations where there is an 
exigent circumstance, the commenter stated that the Commission should 
allow carrying broker-dealers to notify their DEA within 24 hours 
(including an explanation) if they will be unable to perform a customer 
or PAB reserve computation or make a required deposit on a specific day 
due to exigent circumstances.\239\ The explanation

[[Page 2810]]

would describe the circumstances and why it prevents the carrying 
broker-dealer from performing the reserve computation or making the 
deposit. The commenter also stated that if the carrying broker-dealer 
cannot perform the computation, the Commission should permit it to use 
to the prior day's figures to perform the computation, and suggested 
that the Commission should require carrying broker-dealers to 
subsequently notify their DEA of the steps taken to remedy the 
deficiency.\240\
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    \239\ See SIFMA Letter at 8-9. Paragraph (i) of Rule 15c3-3 
currently provides that if a carrying broker-dealer fails to make a 
deposit in its customer or PAB reserve bank account, as required by 
Rule 15c3-3, the carrying broker-dealer must immediately notify the 
Commission and its DEA. Notification requirements for broker-dealers 
generally range from immediate, promptly (but within 24 hours), 
within 24 hours, and within 48 hours. See, e.g., paragraphs (f), 
(d)(1), (b), (d)(2) of Rule 17a-11, respectively. Given the 
importance of the customer protection requirements of Rule 15c3-3, a 
24-hour notification requirement pertaining to the failure to make a 
required deposit would be inappropriate. Consequently, the final 
amendments do not modify the immediate notification requirement of 
paragraph (i) of Rule 15c3-3.
    \240\ See SIFMA Letter at 9.
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    The Commission recognizes that there may be exigent circumstances 
beyond the control of the carrying broker-dealer that could interfere 
with its ability to perform its customer or PAB reserve computation or 
make a required deposit into the customer or PAB reserve bank 
accounts.\241\ For example, exigent circumstances beyond the control of 
the carrying broker-dealer may include, among other things, a natural 
disaster; the failure of a third-party data provider's system that 
affects the carrying broker-dealer's ability to access data necessary 
to compute the customer or PAB reserve computation, or part of the 
computation; or where a carrying broker-dealer cannot make a required 
deposit at a specific bank because the bank cannot accept deposits due 
to a systemwide outage. The Commission expects that these exigent 
circumstances would be rare. The Commission further recognizes that 
performing a daily computation--as compared to a weekly computation--
increases the potential that exigent circumstances could interfere with 
the operations necessary to comply with the computation and deposit 
requirements of Rule 15c3-3, given the greater frequency of the 
necessary computations and deposits. Moreover, this interference--in 
certain circumstances--could occur even though the carrying broker-
dealer has established and maintained effective internal controls over 
compliance.\242\
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    \241\ The Commission has previously provided exemptive relief 
and other relief and guidance for circumstances that have affected 
market participants, including carrying broker-dealers, for events 
such as the COVID-19 pandemic and for Hurricane Sandy in 2012. See, 
e.g., Commission, Coronavirus (COVID-19) Response, available at: 
https://www.sec.gov/sec-coronavirus-covid-19-response (Commission 
statement summarizing the operational initiatives, market-focused 
actions, guidance and targeted assistance and relief, investor 
protection efforts and other work of the Commission in response to 
the effects of COVID-19). See also Letter from Michael A. 
Macchiaroli, Associate Director, Division of Trading and Markets, 
Commission to Ira Hammerman, General Counsel, SIFMA (Dec. 21, 2012) 
(staff no-action position about regulatory issues under Rules 15c3-1 
and 15c3-3 related to the lack of access to the physical securities 
located at the vault of the Depository Trust & Clearing Corporation 
due to Hurricane Sandy), available at https://www.sec.gov/divisions/marketreg/mr-noaction/2012/sifma-122112-15c3.pdf.
    \242\ See 17 CFR 240.17a-5(d)(3). This rule requires a carrying 
broker-dealer to include a compliance report in its annual reports 
filed with the Commission and a report of an independent public 
accountant covering the compliance report. The compliance report 
must include, among other statements, statements that the carrying 
broker-dealer has established and maintained ``Internal Control Over 
Compliance'' as that term is defined in the rule and that the 
Internal Control Over Compliance was effective during the most 
recent fiscal year and as of the end of the fiscal year. See 17 CFR 
240.17a-5(d)(3)(i). The rule defines ``Internal Control Over 
Compliance'' in pertinent part as controls that have the objective 
of providing the broker-dealer with reasonable assurance that non-
compliance with Rule 15c3-3 will be prevented or detected on a 
timely basis. See 17 CFR 240.17a-5(d)(3)(i). Failure to perform a 
customer or PAB reserve computation due to exigent circumstances 
beyond the control of the carrying broker-dealer would not 
necessarily constitute a material weakness for purposes of the 
compliance report. See 17 CFR 240.17a-5(d)(3)(iii) (stating that a 
broker-dealer is not permitted to conclude that its Internal Control 
Over Compliance was effective during the most recent fiscal year if 
there were one or more material weaknesses in its Internal Control 
Over Compliance during the most recent fiscal year).
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    If the exigent circumstances interfere with the carrying broker-
dealer's ability to perform the reserve computation, the firm is 
encouraged to notify its DEA of the situation, explain how the exigent 
circumstances are interfering with its ability to perform the customer 
or PAB reserve computation,\243\ and describe any steps it is taking to 
address the situation such as using the prior day's figures to perform 
the computation, depositing an additional buffer into the customer or 
PAB reserve account, or opening a reserve account at an alternative 
bank.
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    \243\ As noted above, the carrying broker dealer must 
immediately notify the Commission and its DEA if it fails to make a 
required deposit into its customer or PAB reserve accounts. See 
paragraph (i) of Rule 15c3-3.
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    Commenters also stated that the Commission should not require 
carrying broker-dealers to perform a computation (or make it optional) 
on certain days on which markets are closed or close early because it 
is not practical to perform a computation on these days.\244\ In 
particular, one commenter stated that exchanges and financial market 
utilities often close early on the business day before a major holiday, 
and that this makes it difficult to receive on a timely basis certain 
information needed to perform the reserve computation, as exchanges and 
financial market utilities may not update the systems and data needed 
to conduct the computation.\245\ This commenter suggested that the 
Commission should treat New Year's Eve, the Friday before Memorial Day, 
the Wednesday before Thanksgiving, the Friday after Thanksgiving, and 
Christmas Eve as non-business days for purposes of the customer and PAB 
reserve computations.\246\ Commenters also suggested that the 
Commission also should not treat days on which either exchanges or 
banks, but not both, are open, or where exchanges or banks close early, 
as non-business days for purposes of the reserve computations 
(including Veterans Day, Columbus Day, and Good Friday).\247\ One 
commenter stated that this flexibility could improve operational 
efficiency and mitigate the burden on carrying broker-dealers during 
unusual market conditions.\248\ Another commenter stated that it has 
found that customers enjoy the same holidays and half-days, reducing 
the number of customer transactions and, thus, any fluctuations in 
required minimum account balances are likely to be within acceptable 
ranges.\249\
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    \244\ See SIFMA Letter at 9; ASA Letter at 4; Raymond James 
Letter at 4-5.
    \245\ See SIFMA Letter at 9.
    \246\ See SIFMA Letter at 9.
    \247\ See SIFMA Letter at 9-10; Raymond James Letter at 4-5. One 
commenter stated that the Commission staff has previously recognized 
that carrying broker-dealers should not be required to make deposits 
and certain transfers in connection with the special reserve bank 
account on certain days where exchanges are open but banks are 
closed, as carrying broker-dealers may be unable to actually process 
or make such deposits or transfers. See SIFMA Letter at 9.
    \248\ See ASA Letter at 4.
    \249\ See Raymond James Letter at 5.
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    The Commission recognizes there may be days where it is more 
challenging for a carrying broker-dealer to perform a customer or PAB 
reserve computation due to staffing issues related to holidays or when 
banks or exchanges are closed or close early. Performing a daily 
computation--as compared to a weekly computation--means that the work 
necessary to perform the daily computations will need to be performed 
on these days. Carrying broker-dealers should contact the Commission or 
Commission staff, as well as their DEA, if they anticipate that 
performing the reserve computations or making the required deposits 
will be challenging for these or other reasons. The Commission or 
Commission staff will evaluate these requests and may provide exemptive 
or other relief as appropriate. For example, the Commission or 
Commission staff could consider that in some circumstances many 
employees of a carrying broker-dealer may not be working certain days 
before major holidays, and as such, carrying broker-dealers may need an

[[Page 2811]]

additional day to complete their customer and PAB reserve computations 
and deposits.\250\ Finally, when a deposit requirement falls on a day 
that banks are closed, the carrying broker-dealer should make the 
deposit by 10 a.m. of the next business day that the banks are open.
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    \250\ See, e.g., FINRA Regulatory Notice 18-41 (Dec. 17, 2018) 
(notifying FINRA members of an optional one-day extension for 
customer and PAB reserve computations and required deposits around 
the December 2018 month-end holidays). Similar extensions were 
announced in 2007 and 2012. Id. See also FINRA Interpretations of 
Financial and Operational Rules, 15c3-3(e)(3)/021, Reserve Deposits 
Focusing Around Bank Holidays.
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F. Reserve Account Requirements for Security-Based Swaps

    The Commission sought comment in the proposal on whether carrying 
broker-dealers should perform the security-based swap customer reserve 
computation daily (rather than weekly).\251\ One commenter stated that 
the Commission should not change the reserve account requirements for 
SBSDs.\252\ The commenter stated that it is unnecessary to make any 
changes because as the Proposing Release stated that almost all 
carrying broker-dealers that have security-based swap credits already 
take those credits into account and stand-alone SBSDs generally operate 
under an exemption from reserve computation requirements under 17 CFR 
240.18a-4(f) (``Rule 18a-4(f)''). Therefore, the commenter stated 
requiring a daily computation for security-based swap activity would 
have virtually no benefit.\253\
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    \251\ See Proposing Release, 88 FR at 45847. In 2019, the 
Commission adopted customer segregation requirements for broker-
dealers and security-based swap dealers (``SBSDs'') with respect to 
customer money, securities, and property related to security-based 
swaps. See Capital, Margin, and Segregation Requirements for 
Security-Based Swap Dealers and Major-Security-Based Swap 
Participants and Capital and Segregation Requirements for Broker-
Dealers, Exchange Act Release No. 86175 (June 21, 2019) [84 FR 
43872, 43930-43 (Aug. 22, 2019)] (``SBS Segregation Adopting 
Release'').
    \252\ See SIFMA Letter at 11-12.
    \253\ See SIFMA Letter at 11. This commenter also stated the 
Commission previously proposed a daily reserve computation 
requirement for security-based swap activity and did not adopt the 
proposed approach. The commenter stated that there is no need for 
the Commission to revisit this conclusion. Id. at 11-12.
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    The Commission agrees with the commenter that amending Rule 15c3-3 
to require a broker-dealer (including a broker-dealer (other than an 
OTC derivatives dealer) also registered as an SBSD) to perform a 
security-based swap customer reserve computation daily would have 
virtually no impact because the credits related to security-based swap 
activity for security-based swap customers generally are being included 
in the customer reserve computation.\254\ The Commission also agrees 
with the commenter that there would be virtually no benefit to 
requiring stand-alone SBSDs to perform a reserve computation daily 
since all of them operate under the exemption under Rule 18a-4(f).\255\ 
Therefore, the Commission is not adopting a daily reserve requirement 
for the security-based swap customer reserve computation under Rule 
15c3-3 or 17 CFR 240.18a-4 as part of the final amendments.
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    \254\ This is based on FOCUS Report data for calendar year 2023. 
The Commission notes that staff has stated its views in Question 1 
of Responses to Frequently Asked Questions Regarding Financial 
Responsibility Requirements as Applied to Security-Based Swap 
Activities of Broker-Dealers and Security-Based Swap Dealers (Oct. 
8, 2021), available at https://www.sec.gov/tm/faqs-financial-responsibility-req-applied-sbs (``SBS FAQ 1''). Based on FOCUS data 
for December 31, 2023, no broker-dealer reported Total Credits 
greater than $0 (Line 12089) in its security-based swap customer 
reserve computation.
    \255\ These SBSDs are not SIPC members.
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III. Compliance Date

    In the Proposing Release, the Commission sought input from 
commenters on the appropriate compliance date or implementation 
schedule for the proposed amendments. Specifically, the Commission 
requested comment regarding various aspects of the proposal that would 
impact a carrying broker-dealer's ability to comply with the new 
amendments, including the amount of time a carrying broker-dealer would 
need to comply with the requirement to perform a customer and PAB 
reserve computation daily, whether there are any technological or 
operational issues that should be considered, or whether a staggered 
compliance date depending on the size of the average total credits 
would be appropriate, among other things.\256\
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    \256\ See Proposing Release, 88 FR at 46846-45847.
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    The Commission received a few comments relating to the compliance 
date.\257\ Stating that there are complexities associated with moving 
from weekly to daily customer and PAB reserve computations, commenters 
requested various time periods for implementation of the daily customer 
and PAB reserve computation requirements. These commenters suggested 
computing the 12-month rolling average starting one year after 
publication of the final rule,\258\ a compliance timeline of at least 
18 months from the final rule,\259\ as well as implementation dates of 
no earlier than January 2025 and mid- to late-2025.\260\ One commenter 
stated that carrying broker-dealers do not need an additional 
compliance period beyond the six months prescribed in the proposed rule 
after a carrying broker-dealer exceeds the proposed $250 Million 
Threshold.\261\ Commenters stated the proposal would require 
significant time, experience, and expense to implement, would present 
significant operational challenges, and that the transition to a daily 
computation would require significant time to find, hire and train new 
staff to conduct the computation as well as complete the extensive 
systems and operations changes.\262\ One commenter also stated that 
third party data providers, such as service bureaus, would need to be 
able to provide carrying broker-dealers with more timely information 
than is currently available.\263\
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    \257\ SIFMA Letter at 12; Raymond James Letter at 4; ASA Letter 
at 5-6; ASA Letter 2 at 1; Letter from ASA (Oct. 3, 2024) (``ASA 
Letter 4'').
    \258\ See SIFMA Letter at 12.
    \259\ See ASA Letter 4 at 1.
    \260\ See Raymond James Letter at 4; ASA Letter at 6; ASA Letter 
2 at 1.
    \261\ See SIPC Letter at 2.
    \262\ See SIFMA Letter at 12; Raymond James Letter at 3-4; ASA 
Letter at 6; ASA Letter 2 at 1.
    \263\ See SIFMA Letter at 12.
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    Commenters also suggested that the Commission consider the 
cumulative burdens of implementing the amendments and other regulatory 
obligations with potentially overlapping compliance dates.\264\ 
Specifically, one commenter stated that the same carrying broker-
dealers who will be required to move to a daily computation are also 
managing multiple other regulatory requirements.\265\ The commenter 
further stated that unless the Commission provides adequate time to 
manage the new regulatory requirements together, carrying broker-
dealers will face an unmanageable clash of compliance requirements all 
converging at the same time.\266\ Commenters also stated that many 
finance, operations, and information technology employees of carrying 
broker-dealers needed to create and test new programs and systems, 
among other requirements, are also involved in the implementation of 
other large-scale, complex initiatives

[[Page 2812]]

mandated by other new regulations.\267\ Commenters stated that these 
initiatives call on the same personnel, technology, and monetary 
resources to implement them properly.\268\
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    \264\ See, e.g., ASA Letter 2 at 1; SIFMA Letter at 12; Raymond 
James Letter at 4; ASA Letter at 6.
    \265\ ASA Letter at 6.
    \266\ See id. In determining compliance dates, the Commission 
considers the benefits of the rules as well as the costs of delayed 
compliance dates, and potential overlapping compliance dates. For 
the reasons discussed throughout the release, to the extent that 
there are costs from overlapping compliance dates, the benefits of 
the rule justify the costs. See infra sections IV.B.1. and D. in the 
Economic Analysis for a discussion of the interaction of the final 
rule with certain other Commission rules.
    \267\ See SIFMA Letter at 12; Raymond James Letter at 4; ASA 
Letter at 6. New requirements or regulations commenters highlighted 
included T+1 initiatives, amendments to FINRA Rule 4210 about margin 
requirements for covered agency transactions, and compliance with 
requirements of the national Consolidated Audit Trail or ``CAT.''
    \268\ See SIFMA Letter at 12; see also Raymond James Letter at 
4.
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    After consideration of the comments, the Commission agrees that 
carrying broker-dealers need sufficient time to comply with the 
requirement to perform daily customer and PAB reserve computations 
beyond the six months provided in the rule after a carrying broker-
dealer exceeds the $500 Million Threshold.\269\ Carrying broker-dealers 
must begin calculating their average total credits using the 12 most 
recently filed month-end FOCUS Reports ending with the FOCUS Report for 
June 30, 2025. As a result, 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 computations daily beginning no later than December 
31, 2025. This aligns with the requirements of the final amendments, as 
carrying broker-dealers are provided six months under paragraph 
(e)(3)(i)(B)(1) of Rule 15c3-3, as amended, to begin performing 
customer and PAB reserve computations daily after exceeding the $500 
Million Threshold.
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    \269\ See paragraph (e)(3)(i)(B)(1) of Rule 15c3-3, as amended.
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    While one commenter stated that the 12-month rolling average for 
total credits should start one year after publication of the final 
rule, given the importance of addressing the mismatch risk the final 
amendments are designed to address, it is important for carrying 
broker-dealers to comply with the requirement to perform customer and 
PAB reserve computations daily as soon as practicable, while also 
having sufficient time to modify and/or upgrade existing technology, to 
employ additional staff, and to adjust internal processes to comply 
with the daily reserve computation requirement. The Commission agrees 
with commenters that stated an implementation date no sooner than 
January 2025 is appropriate. Thus, as described above in this section, 
by requiring carrying broker-dealers to begin computing a daily 
customer and PAB reserve computation beginning no later than December 
31, 2025, carrying broker dealers will have sufficient time to perform 
the tasks necessary to be able to begin daily customer and PAB reserve 
computations as required by the final amendments.
    Further, the additional six month compliance period provided for 
carrying broker-dealers in this section beyond the six month compliance 
period in the rule is appropriate (for a total compliance period of 
approximately one year) and recognizes that numerous carrying broker-
dealers will prepare to transition to a daily customer and PAB reserve 
computation at the same time.\270\ This additional time considers that 
these carrying broker-dealers may need to interview and hire new 
employees and may use common service providers. Therefore, the extra 
six months will apply to all affected carrying broker-dealers, and a 
common transition period will be easier to administer and more 
equitable.
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    \270\ See paragraph (e)(3)(i)(B)(1) of Rule 15c3-3, as amended.
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    The Commission also recognizes the need for third-party data 
providers to provide data for a customer or PAB reserve computation on 
a timelier basis. Although commenters did not specify a period of time 
necessary for third-party service providers to transition to a more 
frequent provision of information, carrying broker-dealers will have 
approximately one year from adoption to make arrangements with such 
third-party service providers. As multiple carrying broker-dealers 
already perform daily customer and PAB reserve computations on a 
voluntary basis, to the extent third-party service providers supply 
needed data to these carrying broker-dealers, they should be in a 
position to implement the processes and agreements necessary to provide 
additional carrying broker-dealers with the necessary data. The 
requirement to begin daily customer and PAB reserve computations 
beginning no later than December 31, 2025, is an adequate time period 
to accomplish these tasks.
    Further, the compliance period also will provide carrying broker-
dealers whose average total credits may hover close to the $500 Million 
Threshold a sufficient period of time between the date the amendments 
are adopted and the June 30, 2025 calculation date for average total 
credits to determine if they will be subject to the requirement to 
perform a customer and PAB reserve computation daily or whether they 
will manage their customer and PAB credits to remain below the $500 
Million Threshold. Because the requirement to calculate average total 
credits ends with the FOCUS Report for June 30, 2025, part of this time 
period is forward looking to enable carrying broker-dealers to make 
these determinations or adjustments after the Commission adopts the 
final amendments.
    A carrying broker-dealer that elects the alternative method for net 
capital and voluntarily elects to perform the customer reserve 
computation daily pursuant to paragraph (e)(3)(v) of Rule 15c3-3, as 
amended, and reduces aggregate debit items by 2% may do so on or after 
the effective date of the final amendments, provided that the required 
notification to the carrying broker-dealer's DEA has been made at least 
30 days prior to beginning the daily computation (with the 2% debit 
reduction).
    Finally, the compliance date for the amendments to the Form X-17A-
5, Part II (i.e., Part II of the FOCUS Report) is March 1, 2026. This 
will allow carrying broker-dealers the opportunity to become familiar 
with the changes and make any necessary updates to their policies, 
procedures, systems, and practices. In addition, it allows FINRA to 
develop and test these updates to its eFOCUS system.\271\
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    \271\ The carrying broker-dealers subject to the final 
amendments file the FOCUS Report electronically on the FINRA eFOCUS 
system. These carrying broker-dealers file the FOCUS Report pursuant 
to a plan established by the carrying broker-dealer's self-
regulatory organization, the procedures and provisions of which have 
been submitted to and declared effective by the Commission pursuant 
to paragraph (a)(3) of Rule 17a-5. 17 CFR 240.17a-5(a)(3).
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IV. Economic Analysis

A. Introduction

    The Commission is mindful of the economic effects, including the 
benefits and costs, of the final amendments. Section 3(f) of the 
Exchange Act provides that when engaging in rulemaking that requires 
the Commission to consider or determine whether an action is necessary 
or appropriate in the public interest, to also consider, in addition to 
the protection of investors, whether the action will promote 
efficiency, competition, and capital formation.\272\ Section 23(a)(2) 
of the Exchange Act also requires the Commission to consider the effect 
that the rules and rule amendments would have on competition, and it 
prohibits the Commission from adopting any rule that would impose a 
burden on competition not necessary or appropriate in furtherance of 
the Exchange Act.\273\ The analysis below addresses the likely economic 
effects of the final amendments, including the anticipated

[[Page 2813]]

benefits and costs of the amendments and their likely effects on 
efficiency, competition, and capital formation. The Commission also 
discusses the potential economic effects of certain alternatives to the 
approaches taken in this adoption.
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    \272\ See 15 U.S.C. 78c(f).
    \273\ See 15 U.S.C. 78w(a)(2).
---------------------------------------------------------------------------

    As part of their business, carrying broker-dealers regularly 
receive cash related to customers' and PAB account holders' securities 
transactions, such as cash realized from sales of securities. While it 
is common that customers' and PAB account holders' cash is quickly re-
invested or swept out to a bank account or money market fund by the 
customer or PAB account holder, it is also common for this cash to 
remain undeployed for or on behalf of customers and PAB account holders 
for several days or longer prior to the next required customer and PAB 
reserve computations and deposits into the customer and PAB reserve 
bank accounts.\274\
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    \274\ See section I.A of this release (discussing the risk of a 
mismatch of funds owed and funds reserved under Rule 15c3-3).
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    Under preexisting paragraph (e)(3)(i) of Rule 15c3-3, the required 
balances in customer and PAB reserve bank accounts (net cash owed to 
customers or PAB account holders) are required to be calculated weekly, 
and the resulting amount must be held in the customer and PAB reserve 
bank accounts until the date of next required deposit.\275\ However, 
the value of the net cash owed to customers or PAB account holders may 
change daily due to customers' and PAB account holders' transactions 
and re-deployment of undeployed funds. On a weekly basis, this could 
result in a large intra-week mismatch between the customer or PAB 
reserve bank account balances and actual net cash owed to customers or 
PAB account holders. This intra-week mismatch introduces several 
potential risks that are not internalized by carrying broker-dealers.
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    \275\ See section I.C.1. of this release (discussing customer 
protection requirements of Rule 15c3-3 for customers and PAB account 
holders).
---------------------------------------------------------------------------

    First, the mismatch between the calculated and the actual amounts 
of net cash owed to customers and PAB account holders introduces a risk 
to other SIPC members. More specifically, if a liquidation of a 
carrying broker-dealer with a large mismatch of cash in its customer 
and PAB reserve bank accounts is carried out under SIPA, it increases 
the risk that the SIPC Fund balance would be used if there are not 
enough assets in the carrying broker-dealer's estate to cover the 
difference between the net cash owed to customers and the amount in the 
reserve bank account,\276\ which may trigger a subsequent increase in 
contributions from other SIPC members. This risk may be exacerbated for 
carrying broker-dealers experiencing large aggregate intra-week 
mismatches. As a result, the SIPC Fund may be at a higher risk of 
depletion. For example, as discussed in section IV.B.2. below, 
mismatches are common among carrying broker-dealers of all sizes (as 
measured by average total credits). The largest carrying broker-dealers 
with average total credits of at least $500 million \277\ had 
mismatches of between 11% and 20% during 2023.\278\
---------------------------------------------------------------------------

    \276\ See section I.C.2. of this release (discussing broker-
dealer liquidations and SIPA, including the funding and balance of 
the SIPC Fund). For an example of a customer reserve bank account 
mismatch, one carrying broker-dealer had a deficit in its customer 
reserve bank account equal to $5 billion, yet the level of the SIPC 
Fund at the time was at $2 billion. See Merrill Lynch, Pierce, 
Fenner & Smith Incorporated and Merrill Lynch Professional Clearing 
Corp., Order Instituting Administrative and Cease-and-Desist 
Proceedings, Pursuant to sections 15(b) and 21C of the Securities 
Exchange Act of 1934, Making Findings, and Imposing Remedial 
Sanctions and a Cease-and-Desist Order, Exchange Act Rel. No. 78141 
(June 23, 2016).
    \277\ The Proposing Release contained a typographical error 
stating that the largest carrying broker-dealers with average total 
credits of at least $500 billion (instead of $500 million) had 
mismatches of between 10 and 18% in 2022. Despite this typographical 
error in the text, the Proposing Release correctly calculated the 
mismatches using the carrying broker-dealers with at least $500 
million average total credits.
    \278\ Based on FOCUS Report data for 2023. 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). These data are discussed in detail in section IV.B.2 of this 
release, see table 5 in that section and related discussion.
---------------------------------------------------------------------------

    Second, this mismatch introduces a risk to customers and PAB 
account holders of carrying broker-dealers. To the extent that there is 
mismatch of funds in the customer or PAB reserve bank account, a 
failure of a carrying broker-dealer may result in the delayed 
reimbursement of customer or PAB securities and cash. In this scenario, 
the funds 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 funds back until the broker-dealer 
liquidation process is carried out under SIPA, which may take a 
significant amount of time. In addition, customers and PAB account 
holders may not receive their funds in full if the liquidation 
proceedings do not result in a full recovery of funds owed to customers 
and PAB account holders. This risk may be exacerbated for potential 
failures of carrying broker-dealers with large amounts of customer or 
PAB reserve bank account balances, such as when these carrying broker-
dealers experience large aggregate intra-week mismatches between the 
reserve bank account balances and actual net cash owed to customers or 
PAB account holders.
    The requirement to perform daily customer and PAB reserve 
computations for carrying broker-dealers with large amounts of total 
credits is aimed to address these risks and is expected to benefit 
customers, PAB account holders, and other stakeholders of the affected 
carrying broker-dealers by more dynamically matching the net cash owed 
to customers or PAB account holders and the customer and PAB reserve 
bank account balances. More specifically, the daily customer and PAB 
reserve computations will safeguard customers and PAB account holders 
of the affected carrying broker-dealers by covering the mismatches 
promptly, and hence neutralizing the potential of some of these 
mismatches to build over the week, and thereby reducing the risk of a 
potential delay in the return of cash and securities in the event of a 
failure of the affected carrying broker-dealer. Daily computations will 
also decrease the risk that other stakeholders, such as contributors to 
the SIPC Fund, would need to provide additional resources (e.g., in the 
form of increased assessments) to address a failure of a carrying 
broker-dealer.\279\
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    \279\ If the SIPC Fund is used to advance money to customers, 
reducing its balance, this reduction may trigger increased 
contributions from member broker-dealers, as displayed in table 1 in 
section I.C.2. of this release.
---------------------------------------------------------------------------

    The final amendments may result in increased compliance costs for 
the affected carrying broker-dealers. To the extent that each customer 
or PAB reserve computation takes a significant amount of time or 
involves manual processes, affected carrying broker-dealers will 
experience a one-time set up cost related to switching to a daily 
computation, as well as an increase in ongoing costs related to more 
frequent computations. These costs, like the aforementioned benefits, 
may ultimately be passed through to customers and PAB account holders 
of the affected carrying broker-dealers.
    Below, the Commission discusses many of the benefits and costs that 
are likely to result from the adoption of these amendments. To the 
extent practicable, the effects are quantified based on available data. 
Although the Commission is providing estimates of direct compliance 
costs where possible, customer and PAB account holders' may modify 
their activity in accounts maintained by the affected carrying broker-
dealers and customers and PAB

[[Page 2814]]

account holders of non-affected carrying broker-dealers might shift 
their capital to the affected carrying broker-dealers due to such 
increased protections; and carrying broker-dealers near the $500 
Million Threshold may adjust their business activities as a result of 
the final amendments. Moreover, the complexity of customers' and PAB 
account holders' activities for different carrying broker-dealers makes 
it challenging for the Commission to estimate the potential costs for 
various groups of the affected carrying broker-dealers. While the 
Commission has attempted to quantify economic effects where possible, 
much of the discussion of economic effects is qualitative in nature. 
The Commission sought comment on all aspects of the economic 
analysis,\280\ especially any data or information that would enable a 
quantification of the proposal's economic effects and the analysis 
below takes into consideration relevant comments received.
---------------------------------------------------------------------------

    \280\ See Proposing Release, 88 FR at 45859.
---------------------------------------------------------------------------

B. Baseline

1. Regulatory Baseline
    The baseline against which the costs, benefits, and the effects on 
efficiency, competition and capital formation of the final amendments 
are measured consists of current requirements for carrying broker-
dealers under the customer protection rule and the current market 
structure and regulatory framework. As discussed in detail below, the 
economic analysis appropriately considers existing regulatory 
requirements as part of its economic baseline against which the 
benefits and costs of the final amendments are measured.\281\
---------------------------------------------------------------------------

    \281\ See, e.g., Nasdaq v. SEC, 34 F.4th 1105, 1111-15 (D.C. 
Cir. 2022). This approach also follows Commission staff guidance on 
economic analysis for rulemaking. See Commission staff's ``Current 
Guidance on Economic Analysis in SEC Rulemaking'' (Mar. 16, 2012), 
available at https://www.sec.gov/divisions/riskfin/rsfi_guidance_econ_analy_secrulemaking.pdf (``The economic 
consequences of proposed rules (potential costs and benefits 
including effects on efficiency, competition, and capital formation) 
should be measured against a baseline, which is the best assessment 
of how the world would look in the absence of the proposed action. 
The baseline includes both the economic attributes of the relevant 
market and the existing regulatory structure.''). The best 
assessment of how the world would look in the absence of the 
proposed or final action typically does not include recently 
proposed actions, because doing so would improperly assume the 
adoption of those proposed actions.
---------------------------------------------------------------------------

    Several commenters expressed concern about the need to concurrently 
comply with the final amendments and ``other core regulatory 
obligations.'' \282\ Specifically, commenters mentioned the rule and 
amendments adopted in the Settlement Cycle Adopting Release \283\ and 
two other regulatory obligations, namely the new margin requirements 
under FINRA Rule 4210 and the CAT CAIS amendments.\284\ Although the 
specific regulatory obligations mentioned by commenters have been 
implemented,\285\ the Commission has considered the potential effects 
on entities affected by the final amendments that are implementing 
other recently adopted rules during the compliance period for these 
amendments. These recently adopted rules include the Rule 10c-1a 
Adopting Release,\286\ the Treasury Clearing Release,\287\ the Rule 605 
Adopting

[[Page 2815]]

Release,\288\ the Electronic Submission Adopting Release,\289\ and the 
Customer Notification Adopting Release.\290\ These adopted rules were 
not included as part of the baseline in the Proposing Release because 
they were not yet adopted at that time, but they are part of the 
baseline against which this economic analysis considers the benefits 
and costs of the final amendments. Accordingly, this economic analysis 
also considers potential economic effects arising from any overlap that 
may exist between the compliance period for the final amendments and 
the compliance periods for these other adopted rules.\291\
---------------------------------------------------------------------------

    \282\ See, e.g., ASA Letter 2 at 2 (stating ``Our concern is 
that many of the same resources in the business and technology 
groups are delivering against other core regulatory obligations 
including T+1, CAT CAIS and others with 2024 compliance dates 
causing resource strain to effectively deliver the necessary 
analysis and technology solutions needed to move to a daily 
calculation''). See also SIFMA Letter at 12; Raymond James Letter at 
6.
    \283\ Shortening the Securities Transaction Settlement Cycle, 
Exchange Act Release No. 96930 (Feb. 15, 2023) [88 FR 13872 (Mar. 6, 
2023)] (``Settlement Cycle Adopting Release''). The rules and rule 
amendments adopted in the Settlement Cycle Adopting Release shorten 
the standard settlement cycle for most broker-dealer transactions 
from two business days after the trade date to one business day 
after the trade date. To facilitate orderly transition to a shorter 
settlement cycle, a new rule also establishes requirements related 
to completing allocations, confirmations, and affirmations no later 
than the end of trade date for the processing of institutional 
transactions subject to the rule; requires registered investment 
advisers to make and keep records of each confirmation received, and 
of any allocation and each affirmation sent or received, with a date 
and time stamp for each indicating when it was sent or received; and 
requires clearing agencies that provide a central matching service 
(``CMSPs'') to establish, implement, and enforce policies and 
procedures reasonably designed to facilitate straight-through 
processing (``STP'') and to file an annual report regarding progress 
with respect to STP. The rule has a compliance date of May 28, 2024. 
Settlement Cycle Adopting Release, sections VII, VII.B.3.
    \284\ See, e.g., ASA Letter 2 at 2 (stating ``Our concern is 
that many of the same resources in the business and technology 
groups are delivering against other core regulatory obligations 
including T+1, CAT CAIS and others with 2024 compliance dates 
causing resource strain to effectively deliver the necessary 
analysis and technology solutions needed to move to a daily 
calculation''); SIFMA Letter at 12 (stating that the implementation 
of the final amendments will ``call on the same personnel, 
technology, and monetary resources as [the T+1 initiative, the 
implementation of the changes to margin requirements under FINRA 
Rule 4210 and the implementation of the CAIS requirements] to 
implement them properly''; Raymond James Letter at 6 (noting that 
other broker-dealers are implementing systems to comply with the new 
requirements and regulations for the amendments to FINRA Rule 4210 
and the standards of the national Consolidated Audit Trail 
(``CAT''), each of which will become effective in May 2024).
    \285\ The date of the settlement requirements for the transition 
set forth in the Settlement Cycle Adopting Release as well as the 
requirements under FINRA Rule 4210 and CAT CAIS have passed. See 
supra note 283 discussing the relevant filing and compliance dates 
for the Settlement Cycle Adopting Release. For compliance dates for 
the FINRA Rule 4210 requirements, see FINRA, Regulatory Notice 23-14 
(Aug. 18, 2023); see also Exchange Act Release No. 98349 (Sept. 11, 
2023) [88 FR 63633 (Sept. 15, 2023)] (Notice of filing for immediate 
effectiveness File No. SR-FINRA-2023-011). For compliance dates for 
the CAT CAIS requirements, see Interim Reporting Obligation 4 and 
Full CAIS Go-Live (Jan. 22, 2024), available at https://www.catnmsplan.com/sites/default/files/2024-01/01.22.24-CAT-Alert-2023-01.pdf (establishing May 31, 2024 as the compliance date for 
compliance with the CAT CAIS requirements).
    \286\ Reporting of Securities Loans, Exchange Act Release No. 
98737 (Oct. 13, 2023) [88 FR 75644 (Nov. 3, 2023)] (``Rule 10c-1a 
Adopting Release''). This rule is designed to increase the 
transparency of information available to brokers, dealers, and 
investors with respect to loans or borrowing securities, and 
requires any covered person who agrees to a covered securities loan 
on behalf of itself or another person to report specified 
information about the covered securities loan to a registered 
national securities association (currently FINRA is the only 
registered national securities association)--or rely on a reporting 
agent to do so--and requires the registered national securities 
association to make certain information it receives available to the 
public. Covered persons will include market intermediaries, 
securities lenders, and broker-dealers, while reporting agents 
include certain brokers, dealers, or registered clearing agencies. 
The rule's compliance dates require that the registered national 
securities association propose rules pursuant to Rule 10c-1a(f) by 
May 2, 2024, and the proposed rules shall be effective no later than 
January 2, 2025; that covered persons report Rule 10c-1a information 
to a registered national securities association on or by January 2, 
2026 (which requires that the registered national securities 
association have implemented data retention and availability 
requirements such for reporting); and that the registered national 
securities association publicly report Rule 10c-1a information by 
April 2, 2026. Rule 10c-1a Adopting Release, section VIII.
    \287\ 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''). Among other things, the amendments require 
covered clearing agencies for U.S. Treasury securities to have 
written policies and procedures reasonably designed to require that 
every direct participant of the covered clearing agency submit for 
clearance and settlement all eligible secondary market transactions 
in U.S. Treasury securities to which it is a counterparty. The 
compliance date is March 18, 2024, for covered clearing agencies to 
file any proposed rule changes pursuant to final Rule 17Ad-
22(e)(6)(i), 17Ad-22(e)(18)(iv)(c), and 15c3-3, which must be 
effective by March 31, 2025. With respect to the changes to Rule 
17Ad-22(e)(18)(iv)(A) and (B), (i) covered clearing agencies will be 
required to file any proposed rule changes regarding those 
amendments no later than June 14, 2024, and those changes must be 
effective by December 31, 2025, for cash market transactions 
encompassed by section (ii) of the definition of an eligible 
secondary market transaction, and by June 30, 2026 for repo 
transactions encompassed by section (i) of the definition of an 
eligible secondary market transactions. Compliance by the direct 
participants of a U.S. Treasury securities covered clearing agency 
with the requirement to clear eligible secondary market transactions 
would not be required until December 31, 2025, and June 30, 2026, 
respectively, for cash and repo transactions. See Treasury Clearing 
Release, section III. Finally, the Commission amended the broker-
dealer customer protection rule to permit margin required and on 
deposit with covered clearing agencies for U.S. Treasury securities 
to be included as a debit in the reserve formulas for accounts of 
customers and proprietary accounts of broker-dealers, subject to 
certain conditions.
    \288\ Disclosure of Order Execution Information, Exchange Act 
Release No. 99679 (Mar. 6, 2024) [89 FR 26428 (Apr. 15, 2024)] 
(``Rule 605 Adopting Release''). The Commission adopted amendments 
to rules requiring disclosures for order executions in NMS stocks, 
including expanding the scope of reporting entities, modifying the 
scope of orders covered by the rule, and modifying the information 
required to be reported under the rule. The rule has an effective 
date of June 14, 2024 and, with a few exceptions, a compliance date 
of December 14, 2025. See Rule 605 Adopting Release, section VII.
    \289\ Electronic Submission of Certain Materials Under the 
Securities Exchange Act of 1934; Amendments Regarding the FOCUS 
Report, Release Nos. 33-11342; 34-101925; IC-35420 (Dec. 16, 2024) 
(``Electronic Submission Adopting Release''). Under the amendments, 
certain forms and other filings or submissions must be filed or 
submitted electronically on the Commission's Electronic Data 
Gathering, Analysis, and Retrieval (``EDGAR'') system, using 
structured data where appropriate. This includes certain forms, 
reports, notices, schedules and exhibits provided by broker-dealers, 
security-based swap dealers, self-regulatory organizations 
(``SROs'') and major security-based swap participants. The 
amendments also require the information currently contained in Form 
19b-4(e) to be publicly posted on the SRO's website, and they remove 
the manual signature requirements for SRO proposed rule change 
filings. The amendments are effective 60 days after publication in 
the Federal Register, and the compliance dates range from June 30, 
2025, to June 30, 2028, depending on the type of filing or 
submission and on whether the filing firm's minimum fixed dollar net 
capital requirement is less than $250,000 as of Dec. 31, 2024. 
Electronic Submission Adopting Release, section VIII.
    \290\ Regulation S-P: Privacy of Consumer Financial Information 
and Safeguarding Customer Information, Release Nos. 34-100155; IA-
6604; IC-35193 (May 15, 2024) [89 FR 47688 (June 3, 2024)] 
(``Customer Notification Adopting Release''). The Commission amended 
Regulation S-P to require brokers, dealers, funding portals, 
investment companies, registered investment advisers, and transfer 
agents to adopt written policies and procedures for incident 
response programs to address unauthorized access to or use of 
customer information. These must include procedures for providing 
timely notification to individuals affected by an incident involving 
sensitive customer information with details about the incident and 
information designed to help affected individuals respond 
appropriately. Among other things, the amendments also extended to 
transfer agents the requirements to safeguard customer records and 
information, and they broadened the scope of the information covered 
by those requirements. The compliance date for larger entities is 
December 3, 2025, and June 3, 2026, for smaller entities. Customer 
Notification Adopting Release, section II.F.
    \291\ See infra section IV.C.3. of this release.
---------------------------------------------------------------------------

a. Rule 15c3-3
    Carrying broker-dealers are broker-dealers that maintain custody of 
customer securities and cash. Rule 15c3-3, known as the broker-dealer 
customer protection rule, is designed to give specific protection to 
customer funds and securities. For example, a broker-dealer is 
``virtually'' precluded from using customer funds to buy securities for 
its own account.\292\
---------------------------------------------------------------------------

    \292\ See section I.C.1. of this release (describing the 
purposes of Rule 15c3-3).
---------------------------------------------------------------------------

    Preexisting Rule 15c3-3 specifies that a carrying broker-dealer 
must undertake two primary steps to safeguard these customer assets. 
First, carrying broker-dealers are required to maintain physical 
possession or control over customers' fully paid and excess margin 
securities.\293\ Second, a carrying broker-dealer must maintain a 
customer reserve bank account that must hold funds and/or qualified 
securities that are at least equal in value to the net cash owed to 
customers. The amount of net cash owed to customers is computed weekly 
as of the close of the last business day of the week pursuant to the 
customer reserve computation.\294\ Performing a customer reserve 
computation requires a carrying broker-dealer to add up customer credit 
items and then subtract from that amount customer debit items. To 
ensure accuracy of the computations, these credit and debit items are 
reconciled with other firm data and the computations pass through pre-
established internal controls.\295\ If credit items exceed debit items, 
the net amount must be on deposit in the customer reserve bank 
account.\296\ A carrying broker-dealer also is required to make and 
maintain a record of each computation.\297\ Rule 15c3-3 also specifies 
the way a carrying broker-dealer carries accounts that hold proprietary 
securities and cash of other broker-dealers, known as PAB 
accounts.\298\ Broker-dealers are not within the definition of 
``customer'' for purposes of Rule 15c3-3, however, the definition of 
``customer'' under SIPA, includes broker-dealers with a proprietary 
securities account at a carrying broker-dealer. As discussed in more 
detail in section I.C.2. of this release, broker-dealers--as SIPA 
customers--have the right to share pro rata with other customers in the 
customer property in a SIPA liquidation if there is a shortfall in the 
amount the failed broker-dealer owes its customers. Because broker-
dealers that are SIPA customers are entitled to a pro rata share of 
customer property,\299\ Rules 15c3-3 and 15c3-3a require carrying 
broker-dealers to: (1) perform a PAB reserve computation in addition to 
the customer reserve computation; \300\ (2) establish and hold cash 
and/or qualified securities in their PAB reserve bank account in an 
amount determined by the PAB reserve computation; and (3) 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.\301\
---------------------------------------------------------------------------

    \293\ See section I.C.1. of this release (describing possession 
and control requirements for customers' securities).
    \294\ Some carrying broker-dealers choose to perform a daily 
computation. See paragraph (e)(3)(iv) of Rule 15c3-3. Further, the 
rule permits carrying broker-dealers in certain limited 
circumstances to perform a monthly computation. See paragraph 
(e)(3)(i) of Rule 15c3-3. See also section I.C.1. of this release 
(describing the customer reserve bank account and customer reserve 
computation).
    \295\ See SIFMA Letter at 4.
    \296\ See paragraph (e) of Rule 15c3-3. See also section I.C.1. 
of this release (describing the customer reserve bank account and 
customer reserve computation).
    \297\ See paragraph (e)(3)(v) of Rule 15c3-3. Each record must 
be preserved in accordance with Rule 17a-4. Id.
    \298\ See section I.C.1. of this release (describing Rule 15c3-3 
and PAB accounts).
    \299\ See section I.C.2. of this release (describing broker-
dealer liquidations and SIPA).
    \300\ See section I.C.1. of this release (describing Rule 15c3-3 
and customer accounts).
    \301\ See section I.C.1. of this release (describing Rule 15c3-3 
and PAB accounts).
---------------------------------------------------------------------------

b. SIPA and the SIPC Fund
    As described in section I.C.2. of this release, SIPA established 
SIPC and directed SIPC to establish the SIPC Fund.\302\ At the end of 
2023, SIPC reported 3,297 members.\303\ The SIPC Fund totaled 
approximately $4.47 billion as of December 31, 2023, and currently the 
objective is to build it to a level of $5 billion. To date, SIPC has 
carried out 330 liquidations since its inception with approximately 
$141.6 billion in assets distributed to customers.\304\ Of that, about 
$141.6 billion came from debtors' estates (i.e., SIPC broker-dealer 
members' estates),

[[Page 2816]]

while $915.7 million came from the SIPC Fund.\305\
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    \302\ See 15 U.S.C. 78ccc(a)(1) and 78ddd(a)(1).
    \303\ See 2023 SIPC Annual Report, table 2, at 10.
    \304\ As of the end of 2023. See section I.C.2. of this release, 
describing broker-dealer liquidations and SIPA. The volume of 
proceedings was highest in the 1970s (15 per year), while between 
1980 and 2003 the number averaged about seven per year. Since 2003 
the average has been one per year (with the highest number, five, 
occurring in 2008, while there were 10 years with none). See 2023 
SIPC Annual Report, Figure 1, at 8.
    \305\ See 2023 SIPC Annual Report at 8-9, for the statistics in 
this paragraph. SIPC refers to distributions to customers as 
``advances,'' though the 2023 SIPC Annual Report does not detail the 
timing of those advances in the 330 proceedings.
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c. Reserve Account Requirement for Security-Based Swaps
    In 2019, the Commission adopted customer segregation requirements 
for broker-dealers and SBSDs with respect to customer money, 
securities, and property related to security-based swaps.\306\ Under 
these requirements, broker-dealers (including broker-dealers that are 
also SBSDs) are required to perform a separate weekly security-based 
swap customer reserve computation and have a separate security-based 
swap customer reserve account that must hold the net amount of cash 
owed to security-based swap customers.\307\ These requirements were 
based in part on the requirements of Rules 15c3-3 and 15c3-3a discussed 
above.\308\
---------------------------------------------------------------------------

    \306\ See SBS Segregation Adopting Release. See also section 
II.F. of this release (discussing reserve account requirements for 
security-based swaps).
    \307\ See paragraph (p) of Rule 15c3-3; 17 CFR 240.15c3-3b. See 
also section II.F. of this release (discussing reserve account 
requirements for security-based swaps, and SBS FAQ 1 for staff 
views). SBSDs that are not broker-dealers (other than OTC 
derivatives dealers) are subject to the segregation requirements of 
Exchange Act Rules 18a-4 and 18a-4a.
    \308\ See id. See also section I.C.1. of this release 
(discussing the requirements of Rules 15c3-3 and 15c3-3a).
---------------------------------------------------------------------------

2. Affected Broker-Dealers
    Table 2 presents the universe of broker-dealers by presence of 
carrying activities.\309\ As of December 2023, 157 broker-dealers 
identified in Line 40 of the FOCUS Report reported that they carry 
their own customer accounts. Among these, 64 reported having only 
customer credits, 64 reported having both customer and PAB credits, 
none reported having only PAB credits,\310\ and 14 broker-dealers 
reported having no customer credits or debits. Further, 15 broker-
dealers reported having exemptions from the requirements of Rule 15c3-
3, including performing a customer reserve computation.\311\ In 
addition, 34 broker-dealers that did not identify themselves as those 
that carry their own customer accounts in Line 40 of the FOCUS Report 
reported customer and/or PAB credits in their customer or PAB reserve 
computations. Among these, five broker-dealers had both customer and 
PAB credits, 28 broker-dealers had customer credits only, and one 
broker-dealer had PAB account credits only.
---------------------------------------------------------------------------

    \309\ Based on monthly FOCUS Report data for the reporting year 
2023. The Commission assumes that broker-dealers that did not file 
FOCUS Reports for the last month of 2023 are no longer in business.
    \310\ PAB account holders are not considered customers under 
paragraph (a)(1) of Rule 15c3-3. See section I.C.1. of this release 
(describing Rule 15c3-3 and PAB accounts).
    \311\ There are three exemptions to Rule 15c3-3, each related to 
the procedure broker-dealers follow when they receive customer funds 
and securities. The first exemption is for broker-dealers that 
partake in limited mutual fund and insurance-related business. The 
exemption allows such firms to briefly handle customer funds, but 
not maintain indefinite custody of those funds or securities. The 
second exemption applies to broker-dealers that clear their 
transactions on what is known as a ``receive versus payment/delivery 
versus payment (RVP/DVP) basis.'' In an RVP/DVP settlement, a 
broker-dealer executes simultaneous exchanges of an equal value of 
funds for securities. As such, the broker-dealer does not end up 
holding any residual customer funds or securities. The third 
exemption is also available to broker-dealers that temporarily 
handle customer funds. This broker-dealer, called an ``introducing 
broker,'' establishes accounts in the name of its customers at 
another broker-dealer, a ``clearing broker.'' The clearing broker 
then maintains custody of those customers' cash and securities in 
those accounts on a fully disclosed basis. See paragraph (k) of 
Rule15c3-3.
---------------------------------------------------------------------------

    When the Commission computed average total credits using data for 
January 2023 through December 2023, the Commission estimated that there 
are 191 broker-dealers (``carrying broker-dealers'') that currently 
fall within the scope of the Rule 15c3-3 (though of this group, 29 
carrying broker-dealers reported zero customer or PAB credits in 2023). 
In aggregate, these carrying broker-dealers hold approximately 83% of 
all broker-dealer assets,\312\ and report approximately $1.1 trillion 
in total credits and approximately $0.93 trillion in total debits, as 
of December 2023.\313\
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    \312\ Total assets are reported on Line 940 of the FOCUS Report.
    \313\ The Commission uses monthly FOCUS Reports to calculate 
total credits and total debits. For each carrying broker-dealer, 
total credits are calculated as the sum of customer credits reported 
on Line 4430 and the PAB credits reported on Line 2170. Similarly, 
for each carrying broker-dealer, total debits are calculated as the 
sum of the customer debits reported on Line 4472 and the PAB debits 
reported on Line 2230.

                              Table 2--Broker-Dealers by Carrying Activity, 2023 a
----------------------------------------------------------------------------------------------------------------
                                                                  Total credits, $B         Total debits, $B
                                                    Total    ---------------------------------------------------
        Broker-dealer type             Number     assets, $B    Monthly                   Monthly
                                                                average      Year-end     average      Year-end
----------------------------------------------------------------------------------------------------------------
Carrying its own customer accounts          157      4,782.7      1,027.4      1,102.7        825.7        922.4
    --with positive customer and             64      4,143.0        993.8      1,079.0        794.5        901.1
     PAB credits..................
    --with positive customer                 64        570.6         33.5         23.7         31.2         21.3
     credits only.................
    --with zero reported credits..           14         64.2            0            0            0            0
    --with reporting exemptions...           15          5.0  ...........  ...........  ...........  ...........
Not carrying its own customer                34        110.1         20.5         21.9          6.3          7.8
 accounts.........................
    --with positive customer and              5         49.6          2.0          2.4          1.8          2.3
     PAB credits..................
    --with positive customer                 28         59.7         18.4         19.2          4.4          5.2
     credits only.................
    --with positive PAB credits               1          0.8         0.06          0.4         0.07          0.4
     only.........................
Without any carrying activities...        3,208       1013.8  ...........  ...........  ...........  ...........
                                   -----------------------------------------------------------------------------
    Total.........................        3,399      5,906.6      1,047.9      1,124.6        832.0        930.2
----------------------------------------------------------------------------------------------------------------
\a\ Data are for calendar year 2023. The Commission uses monthly FOCUS Reports to calculate average monthly
  total credits and total debits. For each carrying broker-dealer, total credits are calculated as the sum of
  the average monthly amount of customer credits reported on Line 4430 and the average monthly amount of PAB
  credits reported on Line 2170. Similarly, for each broker-dealer, total debits are calculated as the sum of
  the average monthly amount of customer debits reported on Line 4472 and the average monthly amount of PAB
  debits reported on Line 2230.


[[Page 2817]]

    Table 3 displays the carrying broker-dealers that reported positive 
customer or PAB credits in 2023 into groups based on the size of their 
average monthly total customer and PAB credits (averaged over January 
2023 to December 2023).\314\

                                         Table 3--Carrying Broker-Dealers by Size of Average Total Credits, 2023
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                         Total      Total customer credits, $MM         Total PAB credits, $MM       Total credits, $MM
                                              Number     assets  ---------------------------------------------------------------------------------------
                                                          ($B)      Number      Mean      Median     Number      Mean      Median      Mean      Median
--------------------------------------------------------------------------------------------------------------------------------------------------------
>$0-100MM.................................         87      272.2         87       13.6        1.9         22        0.9          0       14.5        2.2
$100-250MM................................         14      132.3         14      157.1      152.3          8        3.2          0      160.3      153.9
$250-500MM................................         12      341.6         12      296.1      296.6          8       61.0       13.5      357.2      315.3
$500MM-1B.................................          8      122.7          8      673.6      633.1          7       24.1        2.5      697.7      633.2
$1-5B.....................................         17      337.3         17    2,239.8    2,103.3         15      104.6        6.3    2,344.3    2,136.5
$5-10B....................................          6      122.9          6    6,554.2    6,702.3          6      646.8       64.8    7,201.0    6,734.2
>=$10B....................................         18    3,494.7         18   46,919.0   33,591.7         16    5,939.0      183.0   52,858.1   36,846.2
                                           -------------------------------------------------------------------------------------------------------------
    Total \a\.............................        162    4,823.6        162    5,767.1       57.7         82      701.3        0.0    6,468.4       63.0
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ Table excludes carrying broker-dealers with zero reported credits in 2023.

    The final amendments modify the proposal by raising the proposed 
$250 Million Threshold to $500 million. Thus, the daily computation 
requirement applies only to carrying broker-dealers whose average total 
credits are above the $500 Million Threshold. Therefore, the Commission 
estimates that, based on data for January 2023 through December 2023, 
the scope of affected entities was 49 carrying broker-dealers, which 
held 99.3% of aggregate total credits of all carrying broker-dealers.
---------------------------------------------------------------------------

    \314\ The grouping is based on the average monthly amount of 
customer credits reported on Line 4430 and the average monthly 
amount of PAB credits reported on Line 2170.
    \315\ Figure created from monthly FOCUS Reports, from January 
2023 through May 2024. The first 12-month computation period is 
January 2023 to December 2023, the second period is February 2023 
through January 2024, and so on. The total number of carrying 
broker-dealers that reported positive total credits in each of the 
six rolling periods shown in Figure 1 equaled 162, 160, 160, 159, 
158 and 160, respectively.
---------------------------------------------------------------------------

    The number of affected carrying broker-dealers may vary month to 
month since a 12-month rolling average is used for the calculation of 
the $500 Million Threshold. To provide information on how the number of 
entities may thus vary over time, Figure 1 displays the number of 
affected carrying broker-dealers for a sequence of 12-month rolling 
averages beginning with January 2023 and extending through May 
2024.\315\
BILLING CODE 8011-01-P

[[Page 2818]]

[GRAPHIC] [TIFF OMITTED] TR13JA25.000

BILLING CODE 8011-01-C
    As shown in Figure 1, the number of affected carrying broker-
dealers varied monthly from 49 to 48 over the period from January 2023 
through May 2024. There was little variation, however, in the identity 
of the affected carrying broker-dealers. The same 47 carrying broker-
dealers met the $500 Million Threshold in each month, and from one to 
two additional carrying broker-dealers met the $500 Million Threshold 
in any given month.\316\ In total, over this period, 50 different 
carrying broker dealers would have been affected.
---------------------------------------------------------------------------

    \316\ One of the carrying broker-dealers above the $500 Million 
Threshold withdrew its broker-dealer registration from the 
Commission in February 2024. This carrying broker-dealer is excluded 
from the number of affected carrying broker-dealers in each of the 
three rolling periods following the rolling period that covers March 
2023 to February 2024.
---------------------------------------------------------------------------

    With respect to the frequency of computation, based on the January 
2023 to December 2023 period (12-month period), table 4 displays the 
number of carrying broker-dealers performing their computations daily, 
weekly, and monthly in each size category for average total 
credits.\317\
---------------------------------------------------------------------------

    \317\ Data from monthly FOCUS Reports filed for the 2023 
calendar year. A small number of carrying broker-dealers did not 
identify any customer or PAB reserve computation frequency (for 
example, for broker-dealers reporting positive credits in customer 
accounts, one failed to report reporting frequency in its FOCUS 
Report). Therefore, the total number of carrying broker-dealers 
exceeds the sum of the number of broker-dealers who identified a 
daily, weekly, or monthly computation frequency.

                                                  Table 4--Reserve Formula Computation Frequency, 2023
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                     Customer reserve formula                           PAB reserve formula
           Average total credits               Number   ------------------------------------------------------------------------------------------------
                                                           Number       Daily      Weekly      Monthly      Number       Daily      Weekly      Monthly
--------------------------------------------------------------------------------------------------------------------------------------------------------
>$0-100MM..................................          87          87           1          72          11           22           0          18           1
$100-250MM.................................          14          14           0          14           0            8           0           6           0
$250-500MM.................................          12          12           0          12           0            8           0           8           0
$500MM-1B..................................           8           8           0           8           0            7           0           7           0
$1-5B......................................          17          17           1          16           0           15           1          14           0

[[Page 2819]]

 
$5-10B.....................................           6           6           0           6           0            6           0           6           0
>=10B......................................          18          18           8          10           0           16           8           8           0
                                            ------------------------------------------------------------------------------------------------------------
    Total..................................         162         162          10         138          11           82           9          67           1
--------------------------------------------------------------------------------------------------------------------------------------------------------

    As shown in table 4, out of 162 carrying broker-dealers that 
reported the frequency of their customer reserve computations, 10 
carrying broker-dealers performed the customer reserve computation 
daily, among which 9 also performed the PAB reserve computation daily 
and one which does not report carrying PAB accounts. Among carrying 
broker-dealers performing the customer reserve computation daily, 9 had 
total credits above the $500 Million Threshold. These 9 carrying 
broker-dealers accounted for 61.9% of the total amount of average total 
credits among all carrying-broker dealers with positive customer or PAB 
credits reported in 2023.\318\ All the carrying broker-dealers 
performing the PAB reserve computation daily had total credits above 
the $500 Million Threshold.\319\
---------------------------------------------------------------------------

    \318\ Calculated from monthly FOCUS Reports for 2023.
    \319\ The carrying broker-dealers identified as computing daily 
in the January 2023 to December 2023 sample were also computing 
daily in the June 2023 to May 2024 period (for both customer and PAB 
accounts). The June 2023 to May 2024 sample included one additional 
carrying broker-dealer with average total credits below the $500 
Million Threshold that performed customer reserve computations on a 
daily basis.
---------------------------------------------------------------------------

    Based on the January 2023 to December 2023 period, there were 40 
carrying broker-dealers with average total credits equal to $500 
million or above performing the customer reserve computation weekly and 
there were no carrying broker-dealers with average total credits equal 
to $500 million or above performing the customer reserve computation 
monthly. Among the 40 carrying broker-dealers performing a weekly 
customer reserve computation, there were 35 carrying broker-dealers 
that performed the PAB reserve computation weekly and there were no 
carrying broker-dealers with average total credits equal to $500 
million or above that performed the PAB reserve computation monthly. 
Based on the data for 2023, the Commission estimates that 40 carrying 
broker-dealers will be affected by the final amendments.
    Table 5 below shows the distribution of deposits required to be put 
into the customer and PAB reserve bank accounts or permitted 
withdrawals after the reserve computation performed at the end of the 
reporting period relative to the reserve bank account balance.\320\ 
These metrics provide a picture of the ``mismatch'' that occurs with 
respect to customer and PAB accounts. Specifically, this mismatch is 
calculated as a carrying broker-dealer's deposit divided by its reserve 
account balance from any month.\321\ The average of these mismatches 
for each broker-dealer over 2023 is computed to determine the ``average 
mismatches.'' For the ``maximum mismatches,'' each broker-dealer's 
largest deposit amount in 2023 is divided by its reserve account 
balance for that month.\322\ The distributions of the average and 
maximum mismatches are presented in the columns ``Average Mismatch'' 
and ``Maximum Mismatch'' of table 5.
---------------------------------------------------------------------------

    \320\ Calculated from monthly FOCUS Reports for 2023. The 
Commission isolated deposits (equal to or greater than zero) from 
any month (Line 4520), relative to the reserve account balance, 
(Line 4530). For PAB reserve bank accounts, deposits and amount in 
reserve account are FOCUS Lines 2290 and 2300, respectively. The 
distribution of the averages of the monthly deposits, withdrawals, 
and reserve account balances (over 2023) are presented in columns 
`Average Deposit', `Average Withdrawal', and `Average Reserve 
Balance' of table 5. The Commission also recalculated by defining 
the deposit category as only values greater than zero, but the 
average mismatch did not change very much for each category, nor did 
the pattern seen in the table.
    \321\ A deposit represents the amount that a carrying broker-
dealer needs to deposit to close the gap between the amount 
prescribed by the reserve computation and the actual reserve balance 
in the bank account.
    \322\ The Commission isolated the largest monthly deposit amount 
in 2023 (Line 4520), relative to the reserve account balance for 
that month (Line 4530). The same was done for PAB reserve accounts 
(FOCUS Lines 2290 and 2300, respectively).
---------------------------------------------------------------------------

    The average mismatches and maximum mismatches were generally lower 
for carrying broker-dealers below the $500 Million Threshold, than for 
carrying broker-dealers above the $500 Million Threshold.
    With respect to customer reserve accounts, shown in panel A, the 
mismatches were larger for the groups of carrying broker-dealers with 
over $500 million in average total credits, with the largest occurring 
for carrying broker-dealers within the $5 to $10 billion range. On the 
aggregate level, for carrying broker-dealers above the $500 Million 
Threshold, the average mismatch was 15.7%, while it was only 6.4% for 
carrying broker-dealers below the $500 Million Threshold.\323\ 
Similarly, the maximum mismatch for carrying broker-dealers above the 
$500 Million Threshold was 36.1%, while it was 20.9% for carrying 
broker-dealers below the $500 Million Threshold.\324\
---------------------------------------------------------------------------

    \323\ Calculated from monthly FOCUS Reports for 2023. 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.
    \324\ Calculated from monthly FOCUS Reports for 2023. The 
maximum mismatch of 36.1% was calculated as an average of the 
maximum mismatches for all carrying broker-dealers above the $500 
Million Threshold. The same was done for carrying broker-dealers 
below the $500 Million Threshold.
---------------------------------------------------------------------------

    For PAB reserve accounts, shown in panel B, the largest average 
mismatches and the maximum mismatches occurred for the groups of 
carrying broker-dealers with over $250 million in average total 
credits, with the largest occurring for carrying broker-dealers with 
over $10 billion in average total credits.
    Panels C and D of table 5 display the average mismatch and maximum 
mismatch metrics comparing the large carrying broker-dealers (over $1 
billion in average total credits) that currently compute their reserve 
accounts daily versus those that do so weekly. With respect to customer 
reserve accounts (panel C), carrying broker-dealers that compute daily 
have larger average reserve balances and deposits, and lower average 
and maximum mismatches than those that compute weekly.
    For PAB reserve accounts (panel D), the average or maximum mismatch 
do not appear as correlated with daily versus weekly filing.

[[Page 2820]]



                               Table 5--Broker-Dealer Deposits and Withdrawals as a Share of Reserve Account Balance, 2023
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                            Average
                  Broker-dealer group                       Number          reserve         Average          Average          Average         Maximum
                                                                          balance MM      deposit MM      withdrawal MM    mismatch (%)    mismatch (%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                           Panel A: Customer Reserve Accounts
--------------------------------------------------------------------------------------------------------------------------------------------------------
>$0-100MM.............................................              87            $9.9            $0.5             -$3.0             6.5            19.8
$100-250MM............................................              14            69.7             3.5             -18.4             6.5            26.5
250-500MM.............................................              12           194.7            11.2             -25.6             5.0            22.1
500MM-1B..............................................               8           190.8            15.8             -24.1            20.8            42.0
1-5B..................................................              17           697.3            56.6             -62.9            15.8            37.9
5-10B.................................................               6         2,848.8           512.5            -142.9            24.3            52.1
>=10B.................................................              18        11,626.0           784.7            -785.1            10.8            26.7
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                              Panel B: PAB Reserve Accounts
--------------------------------------------------------------------------------------------------------------------------------------------------------
>0-100 MM.............................................              22             1.3            0.03              -0.3             1.7            11.3
100-250 MM............................................               8            10.8             0.2              -2.0             1.3             7.1
250-500 MM............................................               8            87.6             3.9             -21.8             4.5            25.4
500MM-1 B.............................................               7             3.2             0.3              -0.7             4.8            21.4
1-5 B.................................................              15            45.6             5.8             -20.0             9.8            40.4
5-10 B................................................               6            79.3            12.8             -85.7             4.9            37.6
>=10 B................................................              16           528.0           101.8            -245.7            12.5            49.4
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                           Panel C: Customer Reserve Accounts
--------------------------------------------------------------------------------------------------------------------------------------------------------
All (weekly and daily):
    >=1B..............................................              41         5,810.1           443.0            -395.0            14.8            35.1
Daily:
    >=1B..............................................               9        13,028.4           423.9            -978.5             3.8            15.2
Weekly:
    >=1B..............................................              32         3,780.0           448.3            -200.5            17.9            40.6
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                              Panel D: PAB Reserve Accounts
--------------------------------------------------------------------------------------------------------------------------------------------------------
All (weekly and daily):
    >=1B..............................................              37           259.7            48.4            -141.5            10.1            43.8
Daily:
    >=1B..............................................               9           778.3           148.4            -278.2            10.5            49.7
Weekly:
    >=1B..............................................              28            93.0            16.3             -77.1            10.0            41.7
--------------------------------------------------------------------------------------------------------------------------------------------------------

3. Debit Reduction in the Customer Reserve Computation for Certain 
Broker-Dealers
    Several commenters suggested that the Commission reduce the 
aggregate debit items charge that certain carrying broker-dealers must 
take when performing their customer reserve computation under Rule 
15c3-3.\325\ Rule 15c3-1 requires broker-dealers to maintain a minimum 
level of net capital at all times. Carrying broker-dealers using the 
alternative method for computing their net capital must maintain 
minimum net capital of the greater of $250,000 or 2% of their aggregate 
debit items computed under the customer reserve computation. In 
addition, a broker-dealer that uses the alternative method to compute 
its net capital must provide the Commission with an ``early warning'' 
notice when its aggregate debit items in its customer reserve 
computation fall below 5%. All carrying broker-dealers with total 
credits more than $500 million in their customer reserve computation as 
of December 31, 2023, use the alternative method. A carrying broker-
dealer using the alternative method to compute its minimum net capital 
requirement must reduce aggregate debit items by 3% when performing its 
customer reserve computation under Rule 15c3-3. This provision serves 
to increase the amount of funds a carrying broker-dealer must deposit 
into its customer reserve bank account.
---------------------------------------------------------------------------

    \325\ See SIFMA Letter at 5; Raymond James Letter at 2; ASA 
Letter at 5; ASA Letter 2 at 1.
---------------------------------------------------------------------------

    Commenters recommended that the Commission eliminate the 3% debit 
reduction and instead apply the 1% debit reduction that currently 
applies to carrying broker-dealers using the basic method to compute 
their net capital. One commenter stated a reduction of the 3% debit 
reduction is warranted because under a daily customer reserve 
computation the value of debit items and amounts carrying broker-
dealers owe customers on any given day are accounted for in the next 
day's customer reserve computation and the difference is protected in 
the next day's deposit into the customer reserve bank account.\326\ 
This 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).\327\ This commenter further stated that carrying 
broker-dealers could use the added liquidity to provide customers with 
more financing at a lower cost, and (reducing the debit reduction) 
would thereby benefit customers as well as carrying broker-
dealers.\328\
---------------------------------------------------------------------------

    \326\ See SIFMA Letter at 6.
    \327\ Id.
    \328\ Id.
---------------------------------------------------------------------------

    Another commenter stated that when the Commission adopted the 3% 
debit reduction in 1975 it stated that the

[[Page 2821]]

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 
transactions.\329\ This commenter stated that a shift to a daily 
customer reserve computation enabled by technological advancements 
since 1975 would 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.\330\ The commenter went on to state that 
``a 1% debit reduction in line with that applied to other broker-
dealers seems appropriate for firms that calculate net capital under 
the alternative method.''
---------------------------------------------------------------------------

    \329\ See Raymond James Letter at 2.
    \330\ Id.
---------------------------------------------------------------------------

    The Commission agrees that performing a customer and PAB reserve 
computation daily will reduce the mismatch risk and more dynamically 
match the amount a carrying broker-dealer owes its customers and PAB 
account holders and the amount on deposit in its customer reserve bank 
account. When the mismatch risk is reduced by moving from weekly to 
daily calculations, the aggregate debit items need not be reduced by 
the 3%. However, the Commission disagrees with commenters that 
performing a daily customer reserve computation merits a decrease of 
the 3% debit reduction to 1% of customer margin loan balances. The 1% 
debit reduction applies to carrying broker-dealers that use the basic 
method to calculate their minimum net capital requirements. Net capital 
requirements are formulated differently under the alternative and basic 
methods. While the basic method targets the overall leverage of a 
carrying broker-dealer directly, under the alternative method, the net 
capital rule is formulated as a percentage of total customer 
receivables. Under the weekly-computation regime, the 3% debit 
reduction has been 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 strengthened the customer reserve 
computation requirements for carrying broker-dealers using the 
alternative method. A 1% debit reduction could lead to inadequate 
combined levels of liquidity and capital buffers at carrying broker-
dealers that use the alternative method to calculate their minimum net 
capital requirements.
    The Commission is modifying the final rule amendments to permit 
carrying broker-dealers that use the alternative method to reduce 
aggregate debit items by 2% rather than 3% if they perform a daily 
customer reserve computation. This amendment will apply to both 
carrying broker-dealers that are required to perform a daily customer 
reserve computation because they exceed the $500 Million Threshold and 
carrying broker-dealers below the $500 Million Threshold that 
voluntarily perform a daily computation. Performing a daily customer 
reserve computation reduces the risk that the net amount of cash owed 
to customers will be substantially greater than the net amount on 
deposit in a carrying broker-dealer's customer reserve bank account.
    A daily computation requirement allows for cash 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, and therefore, reduces the need for 
the current 3% ``cushion.'' Performing a daily customer reserve 
computation will reduce the maximum time between required deposits into 
a customer reserve bank account to two business days.
    A 2% debit reduction is reasonable given the lower mismatch risk 
under a daily customer reserve computation. This 2% ``buffer'' also 
will provide carrying broker-dealers with a safeguard to ensure a 
carrying broker-dealer maintains adequate balances in its customer 
reserve bank account to ensure that the customer securities and cash 
should be readily available to return to customers and PAB account 
holders in the event the carrying broker-dealer fails financially. 
Further, carrying broker-dealers will be able to use this extra 
liquidity to pay the initial and ongoing compliance costs to transition 
from a weekly to daily customer reserve computation under the final 
rule amendments. Carrying broker-dealers below the $500 Million 
Threshold also may choose to voluntarily perform a daily customer 
reserve computation to use the 2% debit reduction. The combined 
requirement of a daily customer reserve computation and a 2% debit 
reduction will provide this additional flexibility while enhancing 
customer protection requirements under Rule 15c3-3.

C. Economic Effects of the Final Amendments

1. Benefits
    Customers and PAB account holders of the affected carrying broker-
dealers are expected to benefit from the requirement to perform daily 
customer and PAB reserve computations. As reflected in the discussion 
in section I.A. of this release noting the large amounts of deposits 
carrying broker-dealers may receive, and as evidenced from the 
information in table 5, a weekly customer and PAB reserve computation 
can result in a carrying broker-dealer owing a net amount of cash to 
customers or PAB account holders for a number of days that is greater 
than the current amounts deposited into the customer and PAB reserve 
bank accounts. Hence, if a carrying broker-dealer fails before the next 
reserve account computation and the reserve bank account balances do 
not represent the actual net amount of cash owed to customers or PAB 
account holders, these customers and PAB account holders may be at risk 
of having their funds tied up in a liquidation proceeding. Performing 
daily customer and PAB reserve computations would likely decrease this 
risk.
    Under the scenario where a carrying broker-dealer does not have 
sufficient funds to repay what it owes to customers or PAB account 
holders, SIPC likely would need to initiate a liquidation of the 
carrying broker-dealer under SIPA.\331\ Although the SIPC Fund can be 
used to advance funds to customers that are owed money, PAB account 
holders are not entitled to such advances; therefore, they may not 
receive the funds owed to them by a failed carrying broker-dealer as 
promptly as other customers of such broker-dealer may. In addition, 
there is a limit on advances to customers in the amount of $500,000 per 
customer (of which $250,000 can be used to cover cash claims). If some 
customers are owed more than such limit, these customers would have to 
wait along with PAB account holders until a trustee is appointed who 
would consequently attempt to recover assets of the failed carrying 
broker-dealer via asset sales or other recovery methods. This recovery 
process may, in some cases, be lengthy.\332\ In an extreme case,

[[Page 2822]]

the amounts the trustee is able to recover may still be insufficient to 
make all customers and PAB account holders whole, which means that 
these customers and PAB account holders would absorb the loss.
---------------------------------------------------------------------------

    \331\ See section I.C.2. of this release (discussing broker-
dealer liquidations and SIPA).
    \332\ For example, it has been the case that customers of a 
liquidated carrying broker-dealer have had to wait up to six months 
or more to access their assets during the liquidation period. See 
Michael P. Jamroz, The Customer Protection Rule, 57 Bus. Law. 1069 
(May 2002), available at https://www.jstor.org/stable/40688076.
---------------------------------------------------------------------------

    Based on these various circumstances, from the customer's or PAB 
account holder's perspective, there are varying degrees of risk related 
to a potential failure of a carrying broker-dealer, depending on 
whether it can promptly return cash and securities to customers and PAB 
account holders, or whether it has enough funds to make all customer 
and PAB account holders whole at the time of its failure. Therefore, 
maintaining levels of customer and PAB reserve bank account balances 
that more closely represent the actual amounts of net cash owed to 
customers and PAB account holders will benefit these customers and PAB 
account holders by decreasing the risk of not completely recovering 
their funds from the carrying broker-dealer or having these funds tied 
up in a liquidation proceeding.\333\
---------------------------------------------------------------------------

    \333\ The Commission notes that, with daily computing, there 
will still be a mismatch between the actual net cash owed to 
customers and the reserve account balance because of the deposit 
timing delay, which is the morning of the second business day after 
the day of calculation. Should a carrying broker-dealer computing 
daily fail, and the amount of the mismatch is lower than in the case 
of a weekly computation, the customer may receive their funds more 
promptly from the carrying broker-dealers' available assets than in 
the case where mismatches are larger (which may imply a longer 
liquidation process), underscoring the potential benefit from daily 
computing.
---------------------------------------------------------------------------

    In addition, performing daily computations will benefit customers 
and PAB account holders of the affected carrying broker-dealers by more 
quickly applying 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 reduces the likelihood 
of carrying broker-dealers inadvertently using customers' or PAB 
account holders' funds to finance any part of their business.\334\
---------------------------------------------------------------------------

    \334\ With respect to each customer reserve computation required 
pursuant to Rule 15c3-3, a broker-dealer must not accept or use any 
of the amounts under items comprising total credits under the 
customer reserve formula except for the specified purposes indicated 
under items comprising total debits under the formula. See paragraph 
(e)(2) of Rule 15c3-3.
---------------------------------------------------------------------------

    Other carrying broker-dealers that are SIPC members may also 
benefit from the requirement to perform daily customer and PAB reserve 
computations. Specifically, if a failing carrying broker-dealer with a 
mismatch between the reserve bank account balances and actual cash owed 
to customers and PAB account holders is put into SIPA liquidation, SIPC 
may be required to use the SIPC Fund to advance money to customers from 
the SIPC Fund, reducing its balance and potentially depleting the SIPC 
Fund. Consequently, a reduction in the SIPC Fund balance and/or SIPC's 
unrestricted net assets may trigger increased contributions from member 
broker-dealers, as displayed in table 1 in section I.C.2. of this 
release, with more substantive balance reductions requiring larger 
increases in assessments of member broker-dealers, which may be passed 
on to investors in the form of higher fees or commissions. Therefore, 
the requirement to perform daily computations will benefit SIPC member 
broker-dealers by reducing the risk of SIPC Fund depletion and a 
consequent increase in SIPC assessments.
    The requirement to perform daily computations will apply only to 
carrying broker-dealers whose average total credits exceed the $500 
Million Threshold. Given the information from the 12-month average 
based on the 2023 monthly FOCUS Reports as an example, the Commission 
estimates that 40 carrying broker-dealers will be required to switch to 
a daily computation of the customer reserve formula and 35 carrying 
broker-dealers will be required to switch to a daily computation of the 
PAB reserve formula.\335\ As shown in table 5, carrying broker-dealers 
with average total credits above the $500 Million Threshold are more 
likely to experience larger mismatches and the dollar amounts 
underlying those mismatches are significantly larger.\336\ And as shown 
in panel C of table 5, those carrying broker-dealers that compute daily 
tend to have smaller mismatches than those that compute weekly. Hence, 
the final amendments may reduce the likelihood of mismatches, 
benefitting customers and PAB account holders of the affected carrying 
broker-dealers.
---------------------------------------------------------------------------

    \335\ See table 3.
    \336\ See discussion in section IV.B.2. of this release for more 
details on table 5.
---------------------------------------------------------------------------

    Further, in cases where carrying broker-dealers with greater 
amounts of total credits are more interdependent with other carrying 
broker-dealers than carrying broker-dealers with smaller amounts of 
total credits, having additional large carrying broker-dealers 
computing daily may benefit financial markets overall without imposing 
the costs of daily computation onto carrying broker-dealers that do not 
have significant amounts of total credits.
    Carrying broker-dealers above the $500 Million Threshold are more 
likely to have PAB accounts, and these PAB accounts hold much greater 
amounts of total credits. To be specific, 89.8% of carrying broker-
dealers above the $500 Million Threshold hold PAB accounts, and they 
have an average value of $2.3 billion in total PAB credits; whereas 
only 33.6% of carrying broker-dealers below the threshold hold PAB 
accounts, and they have an average value of $7.6 million in total PAB 
credits. Therefore, the carrying broker-dealers above the $500 million 
threshold are likely to pose greater risk to other broker-dealers. That 
is, should a carrying broker-dealer fail and not have sufficient funds 
in its PAB reserve bank account to make whole its PAB account holders, 
a broker-dealer that is a PAB account holder of the failed carrying 
broker-dealer may experience delays in the reimbursement of its 
securities and cash and consequently be exposed to financial stress, 
which could further propagate to its PAB account holders, and so on. 
This risk is exacerbated for PAB account holders because they are not 
entitled to advances from the SIPC Fund. In that way, a failure of one 
large carrying broker-dealer with a mismatched PAB reserve bank account 
may result in other carrying broker-dealers experiencing financial 
stress and increased risk of liquidation. Insofar as a daily 
computation for carrying broker-dealers with total credits above the 
$500 Million Threshold reduces the chance that a large carrying broker-
dealer has mismatched funds in its PAB reserve bank account, the 
potential for stress propagation associated with a failure of a 
carrying broker-dealer will be reduced.
    As discussed in the baseline section, a carrying broker-dealer 
using the alternative method to compute its minimum net capital 
requirement must currently reduce aggregate debit items by 3% when 
performing its customer reserve computation under Rule 15c3-3. This 
provision serves to increase the amount of funds a carrying broker-
dealer must deposit into its customer reserve bank account. Also, as 
mentioned in the baseline section, commenters recommended that the 
Commission eliminate the 3% debit reduction and instead apply the 1% 
debit reduction that currently applies to carrying broker-dealers using 
the basic method to compute their net capital.\337\
---------------------------------------------------------------------------

    \337\ See SIFMA Letter at 5; Raymond James Letter at 2; ASA 
Letter at 5; ASA Letter 2 at 1.
---------------------------------------------------------------------------

    The Commission is modifying the final rule amendments to permit 
carrying broker-dealers to reduce aggregate debit items by 2% rather 
than 3% if they perform a daily customer reserve computation. This 
amendment will apply to both carrying broker-

[[Page 2823]]

dealers that are required to perform a daily customer reserve 
computation because they exceed the $500 Million Threshold and carrying 
broker-dealers below the $500 Million Threshold that voluntarily 
perform a daily computation. This amendment creates an incentive for 
smaller carrying broker-dealers to voluntarily perform a daily customer 
reserve computation. To the extent that they do so, this would reduce 
the likelihood of a mismatch of funds in their customer and PAB reserve 
bank accounts, thereby also reducing the risk that customers and PAB 
account holders experience delays in recovering their funds from the 
carrying broker-dealer in case of its failure as well as other risks 
associated with the failure.\338\
---------------------------------------------------------------------------

    \338\ See section II.C. of this release (discussing the 2% debit 
reduction).
---------------------------------------------------------------------------

    For the 49 broker-dealers on Figure 1 of the baseline section that 
met the threshold in 2023, the Commission used FOCUS data on aggregate 
debits to estimate that the change from 3% to 2% adopted by the rule 
amendments would have freed up a monthly average of $7.41 billion of 
liquidity. The reduction in aggregate debit items from 3% to 2% 
mitigates the additional costs to carrying broker dealers who change to 
a daily calculation while still being congruent with investor 
protection; the change to a daily calculation, which lowers mismatch 
risk,\339\ allows for this change.
---------------------------------------------------------------------------

    \339\ See section I.A. of this release (discussing the mismatch 
risk).
---------------------------------------------------------------------------

2. Costs
    Affected broker-dealers may experience an increase in costs 
resulting from the shift to the daily computation requirement. If under 
the weekly computation requirement, the carrying broker-dealers relied 
on staff who fulfilled other functions to also perform the weekly 
computations,\340\ under the daily computation requirement, these 
carrying broker-dealers will need to make operational changes in order 
to re-allocate the effort of this staff across the week or hire new 
personnel who will be assigned the task of performing daily 
computing.\341\ The Commission also expects that the carrying broker-
dealers may need to upgrade their systems and internal controls \342\ 
or potentially create or purchase new programming and systems, and 
update the infrastructure of various functions,\343\ to facilitate the 
increased frequency of computations and accelerate the coordination of 
departments and groups involved in providing the necessary information 
on credit and debit items used to perform the computations.\344\ 
Implementing these operational changes, potential staff increases, and 
upgrades may require the carrying broker-dealers to incur initial 
start-up compliance costs.
---------------------------------------------------------------------------

    \340\ See Raymond James Letter at 4.
    \341\ See SIFMA Letter at 5 (stating ``Firms required to conduct 
daily computations under any final rule will likely have to hire or 
train substantially more employees given this labor- and skill-
intensive process.'').
    \342\ See SIFMA Letter at 4 (stating ``. . . firms must have 
internal controls over their reserve account computations in 
accordance with Exchange Act Rule 17a-5. These controls include 
checks, approval processes, data analytics, and data valuations to 
ensure accurate computations.'')
    \343\ See ASA Letter at 6; Raymond James Letter at 4 (stating 
``the process of implementing the proposed changes to Rule 15c3-3 
will itself require the firm to assign multiple staff members to the 
creation and testing of new programming and systems'').
    \344\ See SIFMA Letter at 4 (stating ``Numerous personnel from 
various departments and groups, including regulatory reporting 
teams, treasury teams, operations teams, fixed income finance desks, 
cash management teams, various middle office teams, and business 
teams, are needed to complete the reserve account calculations'')
---------------------------------------------------------------------------

    The Commission received comments offering estimates of these start-
up costs. One commenter stated that for a carrying broker-dealer that 
currently performs daily reserve computations, it took over 25,000 man-
hours to complete the shift from weekly to daily computing.\345\ This 
commenter also stated that it may require anywhere from 12,000 to 
25,000 man-hours to complete the technology and systems changes 
necessary to make the shift, at cost estimates of $2 million to $3 
million.\346\ The estimated figure of the man-hours spent by a carrying 
broker-dealer that has already implemented the shift to daily computing 
reasonably represents the man-hours for a large carrying broker-dealer, 
and therefore can be interpreted as an upper bound of the effort 
required to implement the necessary technology and systems 
changes.\347\ The commenter did not provide additional information 
about assumptions or methodologies used to derive a cost of $2 to $3 
million from the stated range of 12,000 to 25,000 man-hours. Given that 
on average the 40 of 49 affected broker-dealers who compute weekly have 
smaller amounts of total credits and assets than the carrying broker-
dealers who currently perform daily reserve computations, the stated 
cost estimate of $3 million can be interpreted as an upper bound of the 
initial costs that a carrying broker-dealer may incur in the course of 
implementing the necessary technology and systems changes to comply 
with the final amendments.\348\ The Commission, however, will lower the 
3% debit reduction to 2% for the carrying broker-dealers using the 
alternative method for net capital purposes, if they perform a daily 
customer reserve computation. This will free-up liquidity of these 
carrying broker-dealers, thus partially mitigating their compliance 
costs.
---------------------------------------------------------------------------

    \345\ See SIFMA Letter at 5. This is congruent with a statement 
from another commenter about the carrying broker-dealers that have 
also completed the shift. See ASA Letter at 6 (stating ``these firms 
have shared that it took them approximately 25,000 hours of staff 
and technology work'').
    \346\ See SIFMA Letter at 5.
    \347\ As of December 2023, 9 out of 10 carrying broker-dealers, 
that performed computations on a daily basis, had over $1 billion in 
average total credits and held assets with an average value of $320 
billion.
    \348\ Using the stated cost estimate of $3 million as an upper 
bound of a carrying broker-dealer's initial compliance costs, the 
upper bound of the total initial compliance costs for the 40 
carrying broker-dealers can be estimated as $120 million.
---------------------------------------------------------------------------

    The Commission received comments regarding the ongoing costs. One 
commenter stated that performing a weekly computation requires numerous 
personnel from various departments and groups to obtain thousands of 
credit and debit items, reconcile these items with other firm data, and 
ensure accurate computations.\349\ A different commenter stated that 
implementing the final amendments will require carrying broker-dealers 
to devote the full-time efforts of multiple new personnel in order to 
perform daily calculations and deposits.\350\ This commenter stated 
that when performing and documenting each weekly calculation, no fewer 
than 55 employees are involved in some aspect of the reserve 
computations.\351\
---------------------------------------------------------------------------

    \349\ See SIFMA Letter at 4.
    \350\ See Raymond James Letter at 4.
    \351\ See Raymond James Letter at 3. Another commenter stated 
that the daily computation processes may involve the participation 
of numerous departments, as well as up to 50 different people, 
depending on firm size. See ASA Letter at 6.
---------------------------------------------------------------------------

    The Commission acknowledges that the ongoing costs may increase as 
a result of implementing the final amendments. The Commission also 
agrees that completing a reserve computation requires a successful 
coordination of multiple personnel across various departments within a 
carrying broker-dealer, while the team responsible for performing the 
computation collects and validates information on credit and debit 
items ensuring the accuracy of computations. Thus, the estimate of 55 
employees involved in various aspects of the reserve computations may 
be a reasonable approximation of the number of personnel that 
participate in providing and processing information about the credit 
and debit items for the reserve computations. However, as a result of 
implementing the operational changes and technology upgrades to comply 
with the final amendments, the

[[Page 2824]]

increase in the carrying broker-dealers' ongoing costs can be partially 
mitigated through automation and an accelerated coordination of 
departments and groups involved in providing the necessary information 
on credit and debit items. The Commission also recognizes that not all 
work related to performing the reserve computation can be 
automated.\352\ However, the workload associated with the manual 
verification and validation of the transactions underlying the reserve 
computations can be reallocated across the week, as a result of 
operational changes. For example, if a carrying broker-dealer performed 
the work of verifying and investigating all the transactions at the end 
of the week, when a weekly computation was conducted, under the daily 
computation requirement, this carrying broker-dealer will be verifying 
the transactions daily, as they happen, and hence this workload will be 
spread out across the week. If the effort of the existing staff cannot 
be reallocated across the week effectively, implementing the final 
amendments will require the carrying broker-dealers to hire new 
personnel. However, as the new personnel takes over the task of 
performing daily reserve computations, the workload of the staff 
previously involved in performing weekly reserve computations could be 
reduced.
---------------------------------------------------------------------------

    \352\ See ASA Letter at 6.
---------------------------------------------------------------------------

    One commenter stated that a realistic estimate of the time it takes 
to complete a reserve computation runs into the dozens of hours, 
depending on the complexity of the carrying broker-dealer's business, 
with some carrying broker-dealers spending 60 to 75 man-hours per week 
on computations.\353\ This commenter concluded that moving to daily 
computing would mean a burden of over 400 man-hours a week for some 
carrying broker-dealers, meaning that the burden would increase more 
than five times.
---------------------------------------------------------------------------

    \353\ See SIFMA Letter at 4.
---------------------------------------------------------------------------

    The Commission recognizes that it may take up to 60 to 75 man-hours 
per week to complete a (weekly) reserve computation for carrying 
broker-dealers with complex operations. However, the Commission does 
not expect a more than five times increase in man-hours for the 
carrying broker-dealers required to transition from weekly to daily 
reserve computations, as it was suggested by one of the commenters.
    To the extent that the carrying broker-dealers successfully 
implement the operational changes and technology upgrades discussed 
above, with automation, accelerated coordination of departments and 
groups involved in providing the information for the reserve 
computations, and staff effort being reallocated across the week, the 
number of man-hours spent on performing one reserve computation is 
unlikely to increase (and therefore stay below 75 man-hours). As a 
result, the weekly number of man-hours spent on complying with the 
final amendments is unlikely to increase more than five times for 
carrying broker-dealers making the shift from weekly to daily 
computations, as it was suggested by one of the commenters, and hence 
will be lower than 400 man-hours.
    The daily computation requirement will also lead to an increase in 
the recordkeeping costs.\354\ The Commission estimates that it will 
cost a carrying broker-dealer $184,000 annually per reserve computation 
to prepare the records of that computation.\355\ The 9 carrying broker-
dealers that already perform such computations daily (as shown in table 
4, based on data for the period for January 2023 through December 2023) 
may not experience an increase in recordkeeping costs, however. Given 
the 40 carrying broker-dealers required to switch to a daily 
computation of the customer reserve formula and the 35 carrying broker-
dealers required to switch to a daily computation of the PAB reserve 
formula, that implies that the aggregate annual costs of preparing 
records of reserve computations will increase by approximately $11 
million.\356\
---------------------------------------------------------------------------

    \354\ See infra section V. of this release (discussing PRA). For 
an additional discussion of the costs associated with the 
recordkeeping requirements related to customer and PAB reserve 
computations, including changes to (or the acquisition of) 
technology or systems, see infra section V.D.1. of this release.
    \355\ The $184,000 estimate is based on the following 
calculations: $184,375 (hourly rate for financial reporting manager 
at $295 for 2.5 hours for 250 business days) [ap] $184,000. This 
cost estimate is the same for daily customer and PAB reserve 
computations. It is not an estimate of the time it takes a carrying 
broker-dealer to perform the customer and PAB reserve computations 
or to fulfill current regulatory requirements.
    \356\ The $11 million estimate is based on the following 
calculation: 46,875 of total burden hours under the final amendments 
minus the decrease of 9,750 in burden hours (5,200 hours + 4,550 
hours), multiplied by the hourly rate of $295 for financial 
reporting manager. For an additional discussion of the burden hours, 
see infra section V.D.1. of this release.
---------------------------------------------------------------------------

    One commenter stated that the 2.5 hour burden provided in the 
Proposing Release significantly underestimated the costs associated 
with shifting to the daily computation requirement.\357\ Another 
commenter also stated that the Commission underestimated the staffing 
and time that will be needed to transition to daily computations and 
deposits. These commenters suggested that these costs are larger than 
the figures estimated in the Proposing Release. In response, the 2.5 
hour burden reflects solely the costs of making a record of each 
customer or PAB reserve computation, only one of the components of the 
costs of implementing the final amendments. This estimate does not 
represent any other (initial or ongoing) economic costs that carrying 
broker-dealers may incur while fulfilling the daily computation 
requirements.\358\
---------------------------------------------------------------------------

    \357\ See SIFMA Letter at 4.
    \358\ See infra section V. of this release.
---------------------------------------------------------------------------

    To the extent that the affected carrying broker-dealers that are 
just above the $500 Million Threshold do not experience the same 
economies of scale as carrying broker-dealers that are well above the 
threshold, they may be disproportionately affected by the daily 
computation requirements and the related costs. If these costs are 
significant, some carrying broker-dealers may decide to alter their 
business to fall below the threshold and avoid the costs related to 
performing the customer and PAB reserve computations daily. If so, the 
benefits of the final amendments may be reduced.
    Carrying broker-dealers just below or above the $500 Million 
Threshold may also experience uncertainty related to being scoped into 
compliance with the daily computation requirement and may experience 
costs related to this uncertainty. As displayed in Figure 1, some 
carrying broker-dealers are likely to drop below the $500 Million 
Threshold over time, and then once again exceed the threshold in later 
months. The costs related to these fluctuations are uncertain, but are 
likely to add, for such carrying broker-dealers, to the costs cited 
above (for example, if additional staff is needed by these carrying 
broker-dealers to monitor their customer reserve accounts more closely 
than carrying broker-dealers well above the $500 Million Threshold).
    Furthermore, while switching back and forth between daily and 
weekly computations may tailor the compliance costs to the size of 
customer activity, these fluctuations may also be confusing for 
customers and PAB account holders of carrying broker-dealers who decide 
to switch. However, this potential cost or concern may be trivial as 
many customers may be unaware of, or unconcerned by, the switch.
    Finally, in order to avoid incurring the costs related to the 
uncertainty of having to switch back and forth between daily and weekly 
computations, some of these carrying broker-dealers may prefer to 
voluntarily perform daily

[[Page 2825]]

computations after being scoped into compliance for the first time and 
paying the start-up costs associated with the final amendments, even if 
their average total credits temporarily fall below the $500 Million 
Threshold.
    The Commission received several comments supporting the proposal to 
require carrying broker-dealers with large amounts of credits to 
perform daily customer and PAB reserve computations; \359\ however, 
some of the commenters suggested modifications to the proposed 
threshold.
---------------------------------------------------------------------------

    \359\ See Better Markets Letter; SIPC Letter; NASAA Letter.
---------------------------------------------------------------------------

    For example, some commenters suggested that the Commission should 
apply the final rule requirements to all carrying broker-dealers.\360\ 
One commenter stated that customer protection rationale applies equally 
to clients of both small and large broker-dealers.\361\ Furthermore, 
the same commenter stated that requiring all carrying broker-dealers to 
perform daily computations eliminates the need for carrying broker-
dealers to monitor their average total credits over the twelve-month 
period.\362\
---------------------------------------------------------------------------

    \360\ See Better Markets Letter at 8; Cory Letter; Letter from 
J.R. Rothwell (Sept. 8, 2023).
    \361\ See Better Markets Letter at 8.
    \362\ See Better Markets Letter at 9.
---------------------------------------------------------------------------

    The final amendments do not extend to carrying broker-dealers with 
average total credits below the $500 Million Threshold. Applying the 
daily computation requirement to these carrying broker-dealers would 
impose compliance costs on 113 more broker-dealers with relatively less 
customer and PAB account activity.\363\ Furthermore, as shown in panels 
A and B of table 5, carrying broker-dealers with average total credits 
below the $500 Million Threshold are less likely to experience larger 
mismatches, and the dollar amounts of these mismatches are smaller, 
relative to carrying broker-dealers above the $500 Million Threshold. 
Thus, extending the daily computation requirement to these broker-
dealers would subject them to increased compliance costs while they do 
not have potential for large mismatch risks.
---------------------------------------------------------------------------

    \363\ See section IV.E.3 of this release.
---------------------------------------------------------------------------

    Several commenters also suggested establishing alternative 
thresholds.\364\ One commenter proposed that the Commission define the 
threshold as a formula that could be adjusted periodically to ensure 
that the systemic risk mitigation aims can be reevaluated if 
necessary.\365\ Another commenter suggested incorporating risk and 
liquidity factors into the threshold as they may be better predictors 
of a failing carrying broker-dealer.\366\
---------------------------------------------------------------------------

    \364\ See ASA Letter at 5; NASAA Letter at 2; SIFMA Letter at 6.
    \365\ See NASAA Letter at 2.
    \366\ See ASA Letter at 5.
---------------------------------------------------------------------------

    The Commission disagrees with these commenters' recommendations to 
establish alternative thresholds. Setting formula-based thresholds that 
incorporate dynamic risk or liquidity factors instead of a fixed-dollar 
threshold would make the rule requirements less predictable and more 
complex to monitor for the carrying broker-dealers above the threshold. 
Furthermore, a dynamic formula-based threshold would increase the 
uncertainty of the carrying broker-dealers that would expect to be 
scoped into compliance with the requirements of the rule due to being 
just below the threshold, and, as a result, experience higher costs 
related to this uncertainty. As displayed in Figure 1 and discussed 
above, if the threshold is fixed, some carrying broker-dealers are 
likely to drop below it and then exceed the threshold again in later 
months. These fluctuations would be larger and more costly for the 
carrying broker-dealers if they are expected to comply with a formula-
based threshold that incorporates dynamic factors. A uniform fixed-
dollar threshold will make the rule requirements more predictable and 
easier to monitor over time for the carrying broker-dealers. Another 
commenter suggested to require carrying broker-dealers to perform daily 
computations if their average total credits exceed the proposed $250 
Million Threshold and their average net credits are more than $10 
million.\367\ This commenter stated that including this additional 
metric would ensure that the rule requirements exclude broker-dealers 
without a large excess of credits over debits, as these carrying 
broker-dealers do not present a large mismatch risk.\368\ The 
Commission disagrees with this commenter's suggestion. Although 
carrying broker-dealers may have lower average excess of credits over 
debits, these carrying broker-dealers remain at risk for a large 
mismatch.\369\ The net credit metric does not take into account 
fluctuations in the value of net cash owed to customers and PAB account 
holders, and hence lower average net credits do not necessarily 
indicate that the carrying broker-dealer is at a lower risk of large 
intra-week mismatches. Furthermore, the commenter did not provide any 
data supporting the suggestion that carrying broker-dealers with net 
credits below $10 million necessarily experience lower mismatches.
---------------------------------------------------------------------------

    \367\ See SIFMA Letter at 6.
    \368\ See SIFMA Letter at 6.
    \369\ See section IV.E.2. of this release.
---------------------------------------------------------------------------

    The Commission is adopting a $500 Million Threshold to narrow the 
scope of the final amendments to carrying broker-dealers that tend to 
have larger mismatches. The $500 Million Threshold excludes 12 carrying 
broker-dealers, as compared to the proposed $250 Million Threshold. The 
final amendments are designed to reduce the mismatch risk for carrying 
broker-dealers with large amounts of total credits by reducing the time 
between the inflows of customer funds and when the carrying broker-
dealers perform their next reserve computations and fund their reserve 
accounts, as these carrying broker-dealers are more likely to have 
larger mismatches, and the dollar amounts underlying these mismatches 
are significantly larger. Also, as stated above, a uniform threshold 
will make it easier for the carrying broker-dealers to comply with the 
final amendments.
    Some commenters also suggested that carrying broker-dealers should 
perform the reserve computations in real time, given that the technical 
prerequisites for complex computational operations are already 
present.\370\ The Commission disagrees with these commenters. 
Performing the reserve computations in real time may not be feasible, 
as these computations are often accompanied by manual validations of 
the underlying transactions. Automating these components of 
computations is technically difficult and would be comparatively 
costlier for the carrying broker-dealers than the final amendments.
---------------------------------------------------------------------------

    \370\ See Linder Letter; O'Donnel Letter; and Santos Letter.
---------------------------------------------------------------------------

    One commenter suggested establishing conditions under which either 
the customer or PAB reserve computations would be exempt from the daily 
computation requirement.\371\ The commenter stated that if one of the 
computations (customer or PAB) has significantly less credits relative 
to the other, it may not be necessary or appropriate to require a daily 
reserve computation for the smaller category of account.\372\ The 
commenter's suggestion included setting separate threshold requirements 
for each category of computations.\373\ One commenter also proposed to 
exempt PAB reserve computations from the rule requirements 
entirely.\374\ The

[[Page 2826]]

Commission disagrees with these commenters. As stated above, having a 
daily computation requirement with a uniform threshold that applies to 
average total credits will be less costly to monitor for carrying 
broker-dealers expecting to be scoped into compliance, than a 
requirement prescribing a more complex threshold. Furthermore, 
exempting PAB reserve computations from the rule requirements would 
increase the risks of the PAB account holders as they are not entitled 
to advances from the SIPC Fund in case of the carrying broker-dealer's 
liquidation.
---------------------------------------------------------------------------

    \371\ See Raymond James Letter at 2.
    \372\ See Raymond James Letter at 2.
    \373\ See Raymond James Letter at 3.
    \374\ See ASA Letter at 4.
---------------------------------------------------------------------------

    One commenter stated that the Commission has not appropriately 
weighed the costs of implementing the rule requirements against any 
potential benefits that could derive from the rule.\375\ This commenter 
also suggested that these costs could be passed down to investors 
buying and selling securities.\376\
---------------------------------------------------------------------------

    \375\ See ASA Letter at 1.
    \376\ See ASA Letter at 1.
---------------------------------------------------------------------------

    The Commission recognizes that complying with the rule requirements 
may be costly for the carrying broker-dealers. However, the customers 
and PAB account holders are expected to significantly benefit from the 
protections provided by the final amendments. Performing daily customer 
and PAB reserve computations will decrease the risk of delays in 
recovering their funds from the carrying broker-dealer in case of its 
failure. Moreover, maintaining customer and PAB reserve account 
balances that more closely represent the amounts of cash owed to 
customers and PAB account holders will reduce the risk of not 
completely recovering their funds from the carrying broker-dealer. 
These risks are exacerbated for PAB account holders as they are not 
entitled to advances from SIPC Fund, and hence their benefits from the 
protections provided by the final amendments are expected to be larger. 
Performing daily computations will also benefit customers and PAB 
account holders of carrying broker-dealers by more quickly applying 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 is expected to reduce the likelihood that 
customer funds may be inadvertently used to finance any part of the 
carrying broker-dealer's business. In addition, other carrying broker-
dealers may also benefit from the final amendments, since the 
requirement to perform daily computations may reduce the risk of SIPC 
Fund depletion.
3. Other Compliance Costs
    Several commenters suggested that the Commission should consider 
the cumulative burdens of implementing the proposed rule amendments and 
other regulatory obligations with potentially overlapping compliance 
dates.\377\ Specifically, one commenter stated that ``the same firms 
who will be required to move to a daily computation are also managing 
multiple other regulatory requirements.'' \378\ The commenter further 
stated that ``unless the SEC provides adequate time to manage the new 
regulatory requirements together, firms will face an unmanageable clash 
of compliance requirements all converging at the same time.'' \379\ The 
Commission has considered the potential effects on carrying broker-
dealers that are implementing other recently adopted Commission rules 
during the compliance period for these amendments.
---------------------------------------------------------------------------

    \377\ See, e.g., ASA Letter 2 at 2; SIFMA Letter at 12; Raymond 
James Letter at 4; ASA Letter at 6.
    \378\ See ASA Letter at 6.
    \379\ Id.
---------------------------------------------------------------------------

    Consistent with its long-standing practice, the Commission's 
economic analysis in each adopting release considers the incremental 
benefits and costs for the specific rule--that is, the benefits and 
costs stemming from that rule compared to the baseline. The Commission 
acknowledges the possibility that complying with more than one rule in 
the same time period may entail costs that could exceed the costs if 
the rules were to be complied with separately. One of the rules 
mentioned by commenters which culminated in the recent adoption of the 
rules and amendments in the Settlement Cycle Adopting Release has a 
compliance date that occurred before the effective date of the final 
amendments,\380\ such that there is no overlap in transition 
periods.\381\
---------------------------------------------------------------------------

    \380\ See, e.g., ASA Letter 2 at 2; SIFMA Letter at 12; Raymond 
James Letter at 4; ASA Letter at 6. Although the date of the 
requirements for the T+1 transition has passed, see supra note 283 
for relevant compliance and filing dates, the Commission considers 
other recently adopted Commission rules in this analysis.
    \381\ Commenters also mentioned the new margin requirements 
under FINRA Rule 4210 and the CAT CAIS amendments as two regulatory 
obligations that could potentially overlap with the obligations of 
these final amendments. See, e.g., ASA Letter 2 at 2; SIFMA Letter 
at 12; Raymond James Letter at 6. The requirements under both FINRA 
Rule 4210 and the CAT CAIS amendments have been implemented such 
that there is no overlap with the requirements of these final 
amendments.
---------------------------------------------------------------------------

    With respect to the other recently adopted Commission rules 
discussed above, for which the compliance periods overlap, in part with 
the compliance period for the final amendments,\382\ carrying broker-
dealers subject to the amendments will be subject to one or more of 
those other recently adopted rules only when those carrying broker-
dealers' activities fall within the scope of the other rules. 
Specifically, the rules and amendments adopted in the Rule 605 Adopting 
Release apply to market centers, which includes certain carrying 
broker-dealers.\383\ The Rule 10c-1a Adopting Release and the Customer 
Notification Adopting Release also apply to certain carrying broker-
dealers, although due to differing requirements, these rules may not 
all apply to any given carrying broker-dealer.\384\ The Electronic 
Submission Adopting Release applies to entities that file FOCUS 
Reports, which includes all carrying broker-dealers.\385\ The Treasury 
Clearing Release applies to certain clearing agencies for U.S. Treasury 
securities and certain participants of the covered clearing agencies, 
which could include carrying broker-dealers.\386\ Where rules affecting 
the same entities have overlapping compliance periods, the Commission 
acknowledges that there may be additional costs on those carrying 
broker-dealers subject to one or more other rules.
---------------------------------------------------------------------------

    \382\ See supra section IV.B.1. (listing recent rule adoptions 
and their respective compliance dates) and section III. (listing 
compliance dates).
    \383\ See Rule 605 Adopting Release at 26496-97.
    \384\ See Rule 10c-1a Adopting Release at 75647, 75717-18; 
Customer Notification Adopting Release at 47689, 47725.
    \385\ See Electronic Submission Adopting Release section VI.
    \386\ See Clearing Agency Governance Adopting Release at 84498; 
Treasury Clearing Release at 2717, 2791.
---------------------------------------------------------------------------

D. Effects on Efficiency, Competition, and Capital Formation

    The final amendments may affect competition among carrying broker-
dealers. First, to the extent that compliance costs would be passed 
onto customers and PAB account holders, affected carrying broker-
dealers that experience greater economies of scale may become more 
competitive than other affected carrying broker-dealers. Second, to the 
extent that customers of carrying broker-dealers value daily reserve 
computations more than the weekly computations, the affected carrying 
broker-dealers may become more competitive relative to the unaffected 
carrying broker-dealers. However, the Commission does not anticipate 
such an effect to be large. Given the fact that ten carrying broker-
dealers already compute daily, if such a competitive advantage existed 
and was sufficiently large, and carrying broker-

[[Page 2827]]

dealers performing weekly computations were losing customers, then more 
carrying broker-dealers would have likely already converted to daily 
computing. On the other hand, to the extent that the some of the 
affected carrying broker-dealers that are just above the $500 Million 
Threshold do not experience the same economies of scale as carrying 
broker-dealers that are well above the threshold, they may decide to 
alter their business or adjust the size of their activities to fall 
below the threshold and avoid incurring the compliance costs associated 
with implementing the final amendments, which may in turn adversely 
impact competition.
    As discussed above, the Commission acknowledges that overlapping 
compliance periods may in some cases increase costs.\387\ The 
Commission acknowledges that to the extent overlap occurs between the 
compliance periods of this rule and the compliance periods of other 
rules, there could be costs that could affect competition. However, the 
compliance date is spread over a period extending to December 2025. The 
Commission therefore does not expect the risk of negative competitive 
effects from increased compliance costs from overlapping compliance 
periods to be significant.
---------------------------------------------------------------------------

    \387\ See supra section IV.C.3. (discussing potentially 
overlapping compliance dates and the potential costs to carrying 
broker-dealers subject to the final amendments).
---------------------------------------------------------------------------

    The final amendments may increase liquidity in the securities 
markets, as they will promote confidence in the broker-dealer industry 
by increasing its resilience and result in an increase of customer and 
PAB account activities. As a consequence, market efficiency and capital 
formation in the underlying markets may increase. Under the baseline 
there is a greater chance of a larger mismatch with weekly reserve 
computations than with daily reserve computations, potentially 
suggesting a greater risk in doing business with a carrying broker-
dealer that performs its customer and PAB reserve computations weekly. 
Also, to the extent that the mismatch reflects an overfunding, there 
may also be a greater cost to the carrying broker-dealer (and by 
extension its customers), since it ties up capital that the carrying 
broker-dealer could have put to more productive use.
    Therefore, should customers and PAB account holders have a concern 
over mismatch in reserve bank accounts and potential failures affect 
market participants' willingness to expose themselves to carrying 
broker-dealers, there may be less capital committed to this market as 
otherwise. However, similar to the point above, if customers of 
carrying broker-dealers were aware and concerned of mismatches, the 
Commission might have already observed more carrying broker-dealers 
computing daily, in order to retain customers, than is currently the 
case under the baseline. Therefore, the Commission does not anticipate 
any effect on capital formation in this market to be significant.
    In addition, insofar as capital loss could arise in times of market 
stress due to an increased likelihood of carrying broker-dealer 
failures, market participants may become concerned with the possibility 
of not getting their cash promptly or not getting paid in full in an 
event of a carrying broker-dealer failure and reduce their exposure to 
carrying broker-dealers. To the extent that the daily computation 
requirement alleviates this concern, the risk of flight of capital from 
securities markets may decrease during stressed market conditions and 
capital inflow during normal market conditions may increase.
    Finally, the daily computation requirement may benefit the affected 
carrying broker-dealers by increasing their operational efficiency. For 
example, in a scenario where customer reserve or PAB reserve bank 
accounts are over-funded, a carrying broker-dealer that performs a 
weekly computation cannot withdraw excess cash from the customer 
reserve bank account until the following reserve computation date, even 
if the value of the account exceeds the actual net cash owed to 
customers, exposing this carrying broker-dealer to operational 
inefficiency. A daily computation would permit the affected carrying 
broker-dealers to withdraw these excess funds in a timely manner and 
would allow them to manage their funds and operations more effectively.
    Since the final amendments do not impact the scope of information 
available to investors, the Commission does not anticipate effects on 
informational efficiency to be significant.

E. Reasonable Alternatives

1. Over-Funding of the Customer and PAB Reserve Bank Accounts
    As an alternative to daily computation requirements, the Commission 
considered an over-funding approach which would have applied to the 
customer and PAB reserve bank accounts. For example, carrying broker-
dealers would have performed the required reserve computations and 
deposits weekly and deposited a multiple of this amount (e.g., 105% or 
110%) into the customer or PAB reserve bank account. Under this 
alternative approach, carrying broker-dealers would have avoided an 
increase in compliance costs associated with a daily computation 
requirement (hence, this alternative would have applied to carrying 
broker-dealers choosing weekly funding). Insofar as the compliance 
costs associated with the daily computation would be passed onto 
customers and PAB account holders of the affected carrying broker-
dealers, this alternative approach would have been more beneficial for 
these customers and PAB account holders because it would not have 
implied an operational change and compliance costs related to the 
customer and PAB reserve computation while offering extra protection 
for customers and PAB account holders.
    However, under this alternative the carrying broker-dealer would 
have needed to fund the excess with its own cash, which could have 
resulted in funding costs, decreased liquidity, and opportunity costs 
from not being able to deploy this cash in the carrying broker-dealer's 
business. As a result, requiring carrying broker-dealers to place extra 
cash in a customer or PAB reserve bank account could have resulted in 
an operational efficiency decrease and potential reduction of carrying 
broker-dealers' profits, which may be passed onto customers, PAB 
account holders, and other stakeholders. In addition, this approach 
would not have accounted for the actual net cash owed to customers and 
PAB account holders if reserve bank account mismatches exceeded the 
buffer that this alternative would have required.
2. A Threshold Based on a Different Metric
    As an alternative, the Commission considered setting a threshold 
for compliance with a daily computation requirement based on a 
different metric. For example, the Commission could have set a 
threshold based on total assets of $1 billion or net capital of $50 
million. A threshold based on such metrics could have been more 
representative of the economies of scale that carrying broker-dealers 
experience and could have better indicated a carrying broker-dealer's 
ability to comply with enhanced requirements without substantial 
increases in compliance costs that could have ultimately been passed 
onto their customers.
    Based on the monthly 2023 FOCUS Reports, the Commission estimates 
that under the alternative threshold of $1 billion in total assets 78 
carrying broker-

[[Page 2828]]

dealers would have been required to perform the customer and PAB 
reserve computations daily. Of the 49 carrying broker-dealers that are 
at or above the $500 Million Threshold for average total credits, one 
has total assets below $1 billion, while 30 carrying broker-dealers 
below the $500 Million Threshold have total assets over $1 billion.
    With respect to a $50 million net capital threshold, 100 carrying 
broker-dealers would have been required to perform the customer and PAB 
reserve computations daily. Of the carrying broker-dealers that are 
below $500 Million Threshold for average total credits, 51 have net 
capital exceeding $50 million, while of the group above $500 Million 
Threshold for average total credits, none have net capital below $50 
million.
    If the alternative had stated that the carrying broker-dealer has 
over $1 billion in total assets, or has over $50 million net capital 
threshold, 101 carrying broker-dealers would have been required to 
perform the customer and PAB reserve computations daily.
    A drawback to this alternative is that some large broker-dealers 
with minimal amounts of carrying activity would have borne the added 
cost of switching to a daily computation. For example, the group of 30 
carrying broker-dealers below the $500 Million Threshold with $1 
billion in assets or more, had a combined total of average total 
credits of approximately $4.6 billion as of the end of 2023. That 
amounted to only about 0.44% of average total credits for all carrying 
broker-dealers for that year.\388\
---------------------------------------------------------------------------

    \388\ See table 7 below in section IV.E.6. of this release for 
numbers based on the June 2023 to May 2024 period.
---------------------------------------------------------------------------

    The Commission received a comment suggesting the Commission require 
carrying broker-dealers to perform daily reserve computations if the 
average total credits exceed the proposed $250 Million Threshold and 
average net credits exceed $10 million.\389\ This commenter stated that 
including this additional net credits metric would ensure that the rule 
requirements exclude carrying broker-dealers without a large excess of 
credits over debits, as these carrying broker-dealers do not present a 
large mismatch risk.
---------------------------------------------------------------------------

    \389\ See SIFMA Letter at 6.
---------------------------------------------------------------------------

    Under this alternative, based on the monthly 2023 FOCUS Reports, 51 
carrying broker-dealers would have been required to perform the reserve 
computations daily, compared to the 49 under the final amendments with 
the threshold set to $500 Million.\390\ The potential drawback to this 
alternative is that some of the carrying broker-dealers with large 
amounts of average total credits would have been excluded from the 
daily computation requirement. To be specific, out of 10 carrying 
broker-dealers above the $500 Million Threshold that would have been 
scoped out of the compliance under this alternative, 7 carrying broker-
dealers have over $1 billion in average total credits. Given the 
information displayed in table 5, carrying broker-dealers in this group 
are more likely to have larger mismatches, which suggests that under 
this alternative approach, there is a potential for more carrying 
broker-dealers to have a large mismatch, than under the final 
amendments.
---------------------------------------------------------------------------

    \390\ The average net credits are calculated as an average of 
excess total credits over total debits, where total debits exclude 
3% of aggregate debits (i.e., based on the baseline 3% debit 
reduction).
---------------------------------------------------------------------------

3. Daily Computation Requirement for All Carrying Broker-Dealers
    As an alternative, the Commission considered requiring the daily 
computation requirement to apply to all carrying broker-dealers with 
positive average total credits. Under this alternative, a greater 
number of carrying broker-dealers would have performed their customer 
and PAB reserve computations daily, which would have benefitted more 
customers and PAB account holders compared to the final amendments. 
Specifically, under the zero threshold, 113 more carrying broker-
dealers would have experienced the benefits and costs discussed in 
section IV.C. of this release (compared to the 49 affected based on the 
January 2023 to December 2023 period).
    Further, to the degree that carrying broker-dealers with smaller 
amounts of total credits are interdependent with other broker-dealers 
to the same degree as carrying broker-dealers with larger amounts of 
total credits, this approach would have benefitted all PAB account 
holders equally and potentially reduced the systemic risk to a greater 
degree relative to the final amendments. The number of credits held in 
the PAB reserve bank accounts of the 44 carrying broker-dealers (with 
PAB accounts) above the $500 Million Threshold makes up approximately 
99% of the total amount held in PAB reserve bank accounts (of the 82 
broker-dealers that reported carrying PAB accounts in 2023).\391\
---------------------------------------------------------------------------

    \391\ See table 7 below in section IV.E.6. of this release for 
numbers based on the June 2023 to May 2024 period.
---------------------------------------------------------------------------

    In particular, insofar as a daily computation for all carrying 
broker-dealers reduces the chance that any carrying broker-dealer has 
funds in its PAB reserve bank account that are less than the net amount 
of cash owed to PAB account holders, the potential for stress 
propagation associated with a failure of a carrying broker-dealer could 
be reduced.
    However, this alternative would have imposed compliance costs on a 
greater number of carrying broker-dealers, which could have been passed 
onto customers and PAB account holders. In addition, customer 
protection benefits may have been not justified by the reduction in 
operational efficiency of carrying broker-dealers with little customer 
and PAB account activity that may arise from disproportional dedication 
of resources towards a de minimis business activity. Finally, this 
alternative would have also imposed significant economic impact on 
small businesses.
4. A Higher or Lower Threshold for Daily Computation
    As an alternative, the Commission considered a threshold higher or 
lower than $500 million in average total credits. Under these 
alternatives, fewer or more carrying broker-dealers would have been 
required to perform their customer and PAB reserve computations daily. 
For example, if the threshold was set at $100 million, a total of 75 
carrying broker-dealers would have been scoped into the new 
requirements compared to the 49 under the final amendments. Similarly, 
if the threshold was set at $1 billion, only 41 carrying broker-dealers 
would have been scoped into the new requirements.\392\
---------------------------------------------------------------------------

    \392\ See table 7 below in section IV.E.6. of this release for 
numbers based on the June 2023 to May 2024 period.
---------------------------------------------------------------------------

    If the threshold were $100 million, more carrying broker-dealers 
would perform daily computations, which would mean that fewer broker-
dealers would have a mismatch between the net cash owed to the carrying 
broker-dealer's customers and the amounts deposited in their customer 
or PAB reserve bank accounts. On the other hand, more broker-dealers 
would have incurred the burden of performing their customer and PAB 
reserve computations daily. If the threshold were set at $1 billion, 
fewer carrying broker-dealers would face the costs of a daily 
computation than under the final amendments. However, there would have 
been fewer carrying broker-dealers computing daily, suggesting the 
potential for more carrying broker-dealers having a mismatch than under 
the final amendments.

[[Page 2829]]

5. Calculation Based on the Maximum Value Over the Past Year
    The $500 Million Threshold is the arithmetic mean of the total 
credits in the customer and PAB reserve computations reported on the 
twelve most recently filed month-end FOCUS Reports.\393\ As an 
alternative, the Commission considered a threshold based on the maximum 
value for total credits during the most recently ended calendar year. 
This alternative may have more appropriately accounted for the implied 
capacity of the carrying broker-dealer's reserve bank accounts. For 
example, if total credits related to customers or PAB account holders' 
activity fluctuated throughout a year or based on economic cycles and 
such fluctuations are predictable, the maximum value of total credits 
may have been more representative of the customer transactions' volume. 
As another example, if a carrying broker-dealer experiences trending 
growth of its customer base, the maximum value of total credits would 
have also been more representative of the current size of the customer 
base.
---------------------------------------------------------------------------

    \393\ This means, for example, if a carrying broker-dealer is 
required to file 12 FOCUS Reports for a calendar year, the carrying 
broker-dealer adds up the Total Credits reported in both the 
customer and PAB reserve formulas in each of the 12 FOCUS Reports 
filed, and divides the total by 12 to compute the arithmetic mean.
---------------------------------------------------------------------------

    Table 6 below regroups carrying broker-dealers based on the maximum 
number reported for total credits within a given year. Under this 
alternative, 59 carrying broker-dealers would have been scoped into the 
final rule, compared to the 49 that are scoped into the rule under the 
final amendments.

                                              Table 6--Threshold Based on Maximum Total Credits During 2023
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                         Total      Total customer credits, $MM         Total PAB credits, $MM       Total credits, $MM
                                              Number     assets  ---------------------------------------------------------------------------------------
                                                          ($B)      Number      Mean      Median     Number      Mean      Median      Mean      Median
--------------------------------------------------------------------------------------------------------------------------------------------------------
>$0-100MM.................................         76      212.8         76       14.4        2.7         17        0.3  .........       14.7        2.9
$100-250MM................................         16       91.3         16      159.0      140.2          7        0.1  .........      159.1      140.2
$250-500MM................................         11      147.8         11      323.8      303.7          6       37.7        1.2      360.3      333.6
$500MM-1B.................................         12      301.7         12      540.8      554.9         10      135.6       32.7      643.4      614.1
$1-5B.....................................         22      412.7         22    2,386.7    2,257.6         19      168.8       12.4    2,491.6    2,516.9
$5-10B....................................          5      133.1          5    7,261.8    7,421.5          5      212.1       76.0    7,460.7    7,457.7
>=10B.....................................         20    3,524.2         20   49,360.3   30,366.1         18    8,336.9      330.1   57,157.6   33,833.3
                                           -------------------------------------------------------------------------------------------------------------
    Total \a\.............................        162    4,823.6        162    6,726.6      122.1         82    1,071.5          0    7,719.8      125.6
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ Table excludes carrying broker-dealers with zero reported credits in 2023.

    A benefit of this alternative is those carrying broker-dealers with 
the largest amounts of total credits would be scoped into daily 
computing, where the largest credits reported (as opposed to the 
average) could be more indicative of a potential mismatch between the 
net cash owed to customers and the reserve account balances. However, 
this alternative may also create uncertainty if any cyclical behavior 
of total credits that has occurred over some historical period, changes 
unexpectedly, leading to potential for a carrying broker-dealer 
oscillating between weekly and daily computations and deposits from 
year to year.
    Table 7 summarizes the number of affected broker-dealers under the 
alternatives thus far versus the final amendments, both for the rolling 
sample period defined from January 2023 to December 2023 and for the 
period defined from June 2023 to May 2024.

           Table 7--Summary of Affected Broker-Dealers Under the Final Amendments Versus Alternatives
----------------------------------------------------------------------------------------------------------------
                                                            Number of affected broker-
                                                             dealers (based on period  Number of affected broker-
             Alternatives vs. final amendments               January 2023 to December   dealers (based on period
                                                                      2023)              June 2023 to May 2024)
----------------------------------------------------------------------------------------------------------------
Final Amendments..........................................                         49                         48
Alternatives:
    Alt 1 Over-Funding....................................                        162                        160
    Alt 2 $1B in Total Assets.............................                         78                         79
    Alt 2 $50MM in Net Capital............................                        100                        103
    Alt 2 $10MM in Net Credits and Average T.C. >$250MM...                         51                         51
    Alt 3 Daily for all...................................                        162                        160
    Alt 4 Average T.C. >$1B...............................                         41                         40
    Alt 4 Average T.C. >$100MM............................                         75                         76
    Alt 5 Maximum Total Credits...........................                         59                         57
----------------------------------------------------------------------------------------------------------------

6. Daily Computation if an Average Required Deposit Exceeds a Threshold
    As an alternative to performing the customer and PAB reserve 
computations daily for carrying broker-dealers over a threshold 
(defined by average total credits), the Commission considered an 
approach that would have required a daily computation in the case where 
the required reserve bank account deposit as a share of the reserve 
bank account balance prior to such deposit exceeds a

[[Page 2830]]

certain percentage threshold (e.g., 5% or 10%).\394\
---------------------------------------------------------------------------

    \394\ See discussion related to table 5 in section IV.B.2. of 
this release.
---------------------------------------------------------------------------

    This alternative approach would have accounted for broker-dealer-
specific trends related to customer transactions. If the customer base 
differed substantially between carrying broker-dealers, with customers 
of some carrying broker-dealers trading more often or doing account 
activities that increased the carrying broker-dealer's total credits by 
more compared to the customer base of other broker-dealers, this 
alternative approach would have focused only on those carrying broker-
dealers that typically experience larger reserve mismatches. However, 
given the information displayed in table 5, there does not appear to be 
a perfect correlation with carrying broker-dealer size (measured by 
average total credits), and the deposit ``mismatch.'' \395\ Smaller-
broker dealers can have an average mismatch of more than 5% (based on 
the January 2023 to December 2023 period), implying the possibility of 
an undue burden with respect to compliance costs. That latter could 
have ultimately been passed onto the carrying broker-dealers' customers 
and PAB account holders.
---------------------------------------------------------------------------

    \395\ Computed by dividing the numbers in column four by the 
numbers in column three of panel A of table 5.
---------------------------------------------------------------------------

7. Daily Computation Requirement Based on Average Total Credits per 
Number of Customer and PAB Accounts
    As an alternative to performing the customer and PAB reserve 
computations daily for carrying broker-dealers over a threshold 
(defined by average total credits), the Commission considered requiring 
daily computations based on average total credits per number of 
customer accounts. While a failure of carrying broker-dealers with 
smaller amounts of total credits may not have posed a significant risk 
of depletion to the SIPC Fund, a threshold based on the average total 
credits may have had limitations from an individual customer or PAB 
account holder prospective. This is because such a threshold does not 
account for the number of customers and PAB account holders a carrying 
broker-dealer might have and is disconnected from the per-customer 
protection approach that is used by SIPC.\396\
---------------------------------------------------------------------------

    \396\ Per 15 U.S.C. 78fff-2(c), customers of a failed broker-
dealer have the right to share pro rata with other SIPA customers in 
the customer property held by that broker-dealer. See section I.C.2. 
of this release for more details.
---------------------------------------------------------------------------

    For example, consider two carrying broker-dealers, both with $150 
million in total credits, which is below the $500 Million Threshold. 
The first carrying broker-dealer has three customers, each contributing 
$50 million in credits towards the carrying broker-dealer's aggregate 
value of total credits, and the second carrying broker-dealer has 100 
customers each contributing $1.5 million in credits towards the 
carrying broker-dealer's aggregate value of total credits. Recall that 
the maximum advance from the SIPC Fund is $500,000 per customer. 
Consider a situation where both carrying broker-dealers fail and their 
reserve bank accounts are underfunded by more than 1% of what is owed 
to customers (i.e., the shortage is above $1.5 million). In this 
situation, the customers of the second carrying broker-dealer would be 
made whole promptly with an advance from the SIPC Fund, but the 
customers of the first carrying broker-dealer would not be made whole 
(because the per-customer loss is above maximum per-customer SIPC 
advance of $500,000) until SIPC recovers funds from the carrying 
broker-dealer, which may take some time.
    The above example notwithstanding, data from the FOCUS Reports for 
2023 suggests the potential for this concern is likely negligible. 
Table 8 displays the amounts of average total credits per total 
accounts for each size grouping of carrying broker-dealers. For the 162 
carrying broker-dealers that reported positive total credits in 
December 2023, the average amount of average total credits per account 
(with the number of customer accounts and PAB accounts combined) was 
notably larger for the carrying broker-dealers above the $500 Million 
Threshold than for carrying broker-dealers below the threshold. 
Carrying broker-dealers above the $500 Million Threshold had about $13 
million per customer account, while carrying broker-dealers below the 
$500 Million Threshold had about $.5 million on average per customer 
account.\397\
---------------------------------------------------------------------------

    \397\ Calculated from monthly FOCUS Reports for 2023. The 
Commission divided average total credits in 2023 for each carrying 
broker-dealer by the number of total customer and PAB accounts for 
each carrying broker-dealer (Lines 8080 and 8081, respectively), 
then computed the average of the per customer amount for each size 
category, and above and below the $500 Million Threshold. Lines 8080 
and 8081 are reported in the December FOCUS Report each year, hence 
those numbers are not yet available for the rolling averages beyond 
2023.

                   Table 8--Threshold based on Average Total Credits per Accounts During 2023
----------------------------------------------------------------------------------------------------------------
                                                                     Number of     Total credits   Total credits
                                                                  accounts (cust        $MM         per account
                                                      Number          + PAB)     ----------------       $MM
                                                                 ----------------                ---------------
                                                                       Mean            Mean            Mean
----------------------------------------------------------------------------------------------------------------
>$0-100MM.......................................              87         214,951            14.5             0.6
$100-250MM......................................              14         480,321           160.3             0.1
$250-500MM......................................              12         469,612           357.2             0.4
$500MM-1B.......................................               8         141,807           697.7             1.3
$1-5B...........................................              17       1,964,257         2,344.3            33.6
$5-10B..........................................               6      11,133,250         7,201.0             2.1
>=10B...........................................              18       7,783,768        52,858.1             2.1
                                                 ---------------------------------------------------------------
    Total.......................................             162       1,682,066         6,468.4             5.1
----------------------------------------------------------------------------------------------------------------

8. Daily Computation Based on Average Total Credits From the Most 
Recent Calendar Year
    As an alternative to performing the customer and PAB reserve 
computations daily based on a 12-month rolling average of total 
credits, the Commission considered requiring computation based on the 
arithmetic mean of the sum of total credits over the 12 months in the 
most recent calendar year. For example, whether a carrying-broker 
dealer exceeded the $500 Million Threshold at any point in 2024, would 
have been based on the average total credits from January 2023 through 
December 2023.
    The potential benefit of basing the average total credit amount on 
the most recent calendar year is that carrying

[[Page 2831]]

broker-dealers would have known with certainty if they fell above or 
below the $500 Million Threshold and would have been subject to daily 
or weekly computing for the entirety of the next calendar year. This 
potential benefit contrasted with the possible uncertainty that the 
rolling average computation would have introduced for carrying broker-
dealers that are close to the $500 Million Threshold. That uncertainly 
may have created an added cost for those carrying broker-dealers as 
they would have needed to constantly monitor their standing with 
respect to the $500 Million Threshold. This monitoring may have 
involved additional staff, or existing staff devoting additional time 
to that task, and suggests the cost of the final amendments may be 
marginally higher for some carrying broker-dealers than the cost 
estimates cited earlier in this release.\398\ Or, wishing to avoid this 
monitoring cost, the carrying broker-dealer may have had to decide to 
switch to daily (or weekly) once and for all, which may have also 
implied additional costs.
---------------------------------------------------------------------------

    \398\ See infra section V. of this release (discussing PRA).
---------------------------------------------------------------------------

    However, a potential cost of this alternative was that, over the 
course of a year, a carrying broker-dealer computing weekly (for 
example) may exceed the $500 Million Threshold. This may have resulted 
in a situation where a carrying broker-dealer with average total 
credits above the $500 Million Threshold would not have been engaging 
in daily computation--as it would have with a timelier and up-to-date 
rolling average--and the risks of weekly computing discussed in this 
release would have remained present for that carrying broker-dealer.
9. Reduction of the Aggregate Debit Items Charge From 3% to 1%
    The Commission could have implemented a debit-items charge 
reduction from 3% to 1%, as suggested by some commenters.\399\ This 
change would have freed up double the amount of liquidity ($14.82 
billion) compared to the reduction from 3% to 2% finally chosen by the 
Commission.
---------------------------------------------------------------------------

    \399\ See SIFMA Letter at 5; Raymond James Letter at 2; ASA 
Letter at 5; ASA Letter 2 at 1.
---------------------------------------------------------------------------

    As mentioned in the baseline, however, a 1% debit reduction already 
applies to firms that use the basic method to calculate their net 
capital requirements. Net capital requirements are formulated 
differently under the alternative and basic methods. While the basic 
method targets the leverage of a carrying broker-dealer directly, under 
the alternative method, the net capital rule is formulated as a 
percentage of total customer receivables. The 1% debit reduction should 
not be applied to firms that calculate their net capital requirements 
under the alternative method. Otherwise, their combined levels of 
liquidity and capital buffers under the customer protection and net 
capital rules may fall below adequate levels. The 2% debit reduction 
will be appropriate because moving from weekly to daily computations, 
the mismatch risk, which has been discussed earlier, will be reduced, 
and so the original 3% debit reduction will not be required in the new 
regime.
10. Exemption for Cash in Motion
    The Commission could have adopted an alternative that exempts from 
the reserve computations cash that has been ``directed off of the 
[carrying broker dealer's] balance sheet,'' \400\ for example, cash 
that is subject to a sweep program in accordance with paragraph 
(j)(2)(ii) of Rule 15c3-3.\401\ Commenters raised the following 
scenario: a customer deposits cash with the carrying broker-dealer near 
the close of the business (say, Monday for example). It is sufficiently 
late in the day that the carrying broker-dealer cannot sweep the cash 
into the money market fund or bank; however, according to the 
customer's preset instructions, the carrying broker-dealer will 
automatically sweep the funds into the money market fund or bank 
account the first thing next morning (Tuesday). Such funds would become 
part of the customer reserve computation and would need to be deposited 
in the customer reserve bank account on Wednesday, even though, as of 
the next morning (on Tuesday), they are no longer held by the carrying 
broker-dealer. Thus, the carrying broker-dealer would need to fund the 
customer reserve bank account from its own reserves. Commenters stated 
that this situation creates new costs in the daily versus the weekly 
computation. Under the weekly computation, cash deposited on Monday 
would be swept out on Tuesday, and therefore would not be subject to 
the weekly reserve computation the next Monday (using numbers as of the 
close of business the previous Friday).\402\
---------------------------------------------------------------------------

    \400\ See ASA Letter 2 at 1.
    \401\ See ASA Letter at 2; SIFMA Letter at 7; ASA Letter 3.
    \402\ However, this scenario of having to account for cash that 
is no longer held by the carrying broker-dealer also can occur under 
the existing weekly reserve computation requirement. For example, 
customer cash deposited at the 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-week 
reserve computation, the cash must remain in the customer reserve 
bank account until the following Tuesday. Thus, the new cost arises 
from the fact that a daily customer reserve computation can increase 
the frequency of having to account for customer cash that is no 
longer held by the carrying broker-dealer, but--as discussed below--
the daily requirement also shortens the time that the cash must be 
held in the customer reserve bank account.
---------------------------------------------------------------------------

    The Commission recognizes that this alternative would lower costs 
for carrying broker-dealers in that it would reduce the amount of cash 
they would need to set aside. However, the Commission does not believe 
the relative cost savings to be substantial, as the carrying broker-
dealer would only be required to fund the reserve bank account 
overnight (in the example above from Wednesday to Thursday), because, 
under the commenter's assumption, the cash is swept out as of Tuesday 
morning and therefore would not be required to be held (in the customer 
reserve bank account) as of Thursday. Moreover, the cost only applies 
to cash that is received before close of business and yet after the 
sweep deadline. Any cash received before the sweep deadline on Monday 
would not be part of the reserve computation as of Monday afternoon.
    On the other hand, retaining this requirement maintains the current 
level of customer protection, providing a buffer against the situation 
where the funds in the customer reserve bank account turn out to be 
insufficient to pay customers in the event of broker-dealer failure.

V. Paperwork Reduction Act

    Paragraph (e) of Rule 15c3-3 contains ``collection of information'' 
requirements within the meaning of the Paperwork Reduction Act 
(``PRA'').\403\ Specifically, paragraph (e) of Rule 15c3-3 requires 
carrying broker-dealers to make and maintain a record of each customer 
and PAB reserve computation and to preserve each such record in 
accordance with Rule 17a-4.\404\ The Commission has submitted the final 
collection of information to the Office of Management and Budget 
(``OMB'') for review and approval in accordance with the PRA and its 
implementing regulations.\405\ For the amendments, the title of the 
existing information collection is ``Customer Protection--Reserves and 
Custody of Securities''

[[Page 2832]]

(OMB Control No. 3235-0078), and the amendments revise that collection. 
An agency may not conduct or sponsor, and a person is not required to 
respond to, a collection of information unless it displays a currently 
valid OMB control number.\406\ The Commission published notice 
soliciting comments on the collection of information requirements in 
the Proposing Release \407\ and submitted the proposed collections of 
information to OMB for review in accordance with the PRA.\408\ The 
initial burden estimates from the Proposing Release have been adjusted, 
as discussed below, to reflect updated information used to make the 
current estimates, including updated FOCUS Report data.\409\
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    \403\ See 44 U.S.C. 3501 et seq.
    \404\ See 17 CFR 240.15c3-3(e)(3)(v).
    \405\ See 44 U.S.C. 3507; 5 CFR 1320.11.
    \406\ See 5 CFR 1320.11(l).
    \407\ See Proposing Release, 88 FR at 45859-62.
    \408\ 44 U.S.C. 3507(d); 5 CFR 1320.11.
    \409\ The PRA estimates derived from FOCUS Reports have been 
updated in this final release to reflect more recently available 
information, including FOCUS Report data for the 2023 calendar year. 
The estimates in the Proposing Release were based on FOCUS Report 
data for the 2022 calendar year.
---------------------------------------------------------------------------

    The burden estimates contained in this section are recordkeeping 
and notification burdens. The recordkeeping burden relates solely to 
the requirement for carrying broker-dealers to make and maintain a 
record of the customer and PAB reserve computations and do not include 
any other possible costs or economic effects beyond the burdens 
required to be calculated for PRA purposes.\410\
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    \410\ See the Economic Analysis in section IV. of this release.
---------------------------------------------------------------------------

A. Summary of Collections of Information Under the Final Amendments

    Rule 15c3-3 requires each carrying broker-dealer to maintain a 
reserve of cash and/or qualified securities in a customer reserve bank 
account that is at least equal in value to the net cash owed to 
customers.\411\ Carrying broker-dealers also maintain a reserve of cash 
and/or qualified securities in a PAB reserve bank account in an amount 
that is at least equal in value to the net cash owed to PAB account 
holders.\412\ In order to determine the amount required to be deposited 
in the customer and PAB reserve bank accounts, Rule 15c3-3 requires 
carrying broker-dealers to perform weekly customer and PAB reserve 
computations as of the close of the last business day of each 
week.\413\ The rule requires carrying broker-dealers to make and 
maintain a record of each such computation, and to also preserve each 
such record in accordance with Rule 17a-4.\414\ This recordkeeping 
requirement represents a collection of information for PRA purposes. 
This is an existing PRA burden. As described in this section below, the 
estimated hourly burden associated with this collection of information 
is not changing. Instead, the total burden is being revised to reflect 
that the number of respondents subject to the estimated burden will 
change as a result of the amendments to Rule 15c3-3 adopted by the 
Commission.
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    \411\ See paragraph (e) of Rule 15c3-3. See also section I.C.1. 
of this release (discussing the customer reserve requirements of 
Rule 15c3-3 in more detail).
    \412\ See paragraph (e) of Rule 15c3-3.
    \413\ See paragraph (e) of Rule 15c3-3. Rule 15c3-3 also permits 
certain carrying broker-dealers to perform their reserve 
computations monthly. See paragraphs (e)(3)(i) and (iii) of Rule 
15c3-3. Some carrying broker-dealers also elect to perform daily 
customer and PAB reserve computations. See paragraph (e)(3)(iv) of 
Rule 15c3-3.
    \414\ See paragraph (e)(3)(v) of Rule 15c3-3. This paragraph is 
being re-designated as paragraph (vi) as part of the final 
amendments.
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    As a result of the amendments, carrying broker-dealers with average 
total credits equal to or greater than the $500 Million Threshold must 
perform the customer and PAB reserve computations daily instead of 
weekly, and must make and maintain a record of each such daily 
computation, and also preserve each such record.\415\ The amendments 
also provide that a carrying broker-dealer performing daily customer 
and PAB reserve computations may elect to perform weekly computations 
if its average total credits fall below the $500 Million Threshold and 
it notifies its DEA, in writing, of this election at least 60 calendar 
days prior to starting weekly computations.\416\ This notification 
requirement represents a collection of information for the purposes of 
the PRA.
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    \415\ See paragraph (e)(3)(i)(B)(1) of Rule 15c3-3, as amended.
    \416\ See paragraph (e)(3)(i)(B)(2) of Rule 15c3-3, as amended.
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    Further, as a result of the amendments to Rule 15c3-3, carrying 
broker-dealers that elect to voluntarily perform the customer reserve 
computation daily and seek to reduce aggregate debit items in the 
customer reserve computation by 2% instead of 3% must provide 
notification to their DEA 30 calendar days prior to operating under 
this provision.\417\ This notification requirement represents a 
collection of information for PRA purposes.
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    \417\ See paragraph (e)(3)(v) of Rule 15c3-3, as amended.
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    In addition, as a result of the amendment to paragraph 
(a)(1)(ii)(A) of Rule 15c3-1,\418\ a carrying broker-dealer required to 
perform a daily customer reserve computation may reduce aggregate debit 
items in such computation by 2% rather than 3%. This paragraph does not 
contain an information collection requirement. Therefore, the 
Commission is not estimating any new collection of information burdens, 
or revising any existing burden estimates, in connection with this 
amendment.
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    \418\ The OMB Control No. for Rule 15c3-1 (17 CFR 240.15c3-1) is 
3235-0200.
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    Finally, the Commission is adopting technical amendments to Part II 
of the FOCUS Report (OMB Control No. 3235-0123) to conform it to the 
amendments with respect to the lowering of the debit reduction from 3% 
to 2%.\419\ Because these amendments, as described above in section 
II.C.2 of this release, add only two additional lines to a lengthy 
form, carrying broker-dealers can quickly familiarize themselves with 
them. Accordingly, the addition of the two new line items will not 
affect the current estimated burden.
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    \419\ See supra section II.C.2. of this release (discussing the 
conforming amendments to the FOCUS Report).
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B. Use of the Information

    Rule 15c3-3 is an integral part of the Commission's financial 
responsibility program for broker-dealers. The requirement to document 
in writing the customer and PAB reserve computations facilitates the 
process by which the Commission and the carrying broker-dealer's DEA 
examine the broker-dealer's compliance with Rule 15c3-3. The purpose of 
the 60-day written notice requirement is to provide the DEA with prior 
notice that the carrying broker-dealer is switching from daily to 
weekly customer and PAB reserve computations and provide the DEA the 
opportunity to contact the carrying broker-dealer and ask how it 
intends to implement the change. This will assist the DEA in monitoring 
the carrying broker-dealer. Similarly, the 30-day notification 
requirement for carrying broker-dealers electing to voluntarily perform 
a daily customer reserve computation and deduct 2% of aggregate debit 
items is to ensure that the carrying broker-dealer's DEA is aware of 
the carrying broker-dealer's election and is able to monitor its 
compliance with those requirements.

C. Respondents

1. Recordkeeping Requirements
    Under the amendments, respondents are carrying broker-dealers with 
average total credits equal to or exceeding the $500 Million Threshold. 
The Commission estimates there are approximately 49 carrying broker-
dealers that will have average total credits equal to or exceeding the 
$500

[[Page 2833]]

Million Threshold based on a review of FOCUS Report data for the 
calendar year 2023. Of these carrying broker-dealers, the Commission 
estimates that 9 already perform the customer reserve computation 
daily, and therefore already make, maintain, and preserve a record of 
each such computation. Of the 49 carrying broker-dealers that would 
have average total credits equal to or exceed the $500 Million 
Threshold, the Commission estimates that 44 perform a PAB reserve 
computation, with 9 of these carrying broker-dealers already performing 
the PAB reserve computation daily, and therefore already make, 
maintain, and preserve a record of each such computation. Consequently, 
for the purposes of the PRA, the Commission estimates that there are 40 
respondents for the requirement to make, maintain, and to preserve a 
record of each customer reserve computation, and 35 respondents for the 
requirement to make, maintain, and to preserve a record of each PAB 
reserve computation. These respondents are currently included in the 
collection of information associated with Rule 15c3-3 related to weekly 
computations for the customer and PAB reserve computations and the 
requirement to make, maintain, and to preserve a record of each such 
computation. However, as a result of the amendments, these respondents 
will need to perform daily customer and PAB reserve computations rather 
than weekly computations, and make, maintain, and preserve a record of 
each such computation.
2. Notification Requirement To Revert to Weekly Computations
    Based on a review of FOCUS Report data for the calendar year 2023, 
the Commission estimates that one carrying broker-dealer per year will 
provide notice to their DEA that the carrying broker-dealer's average 
total credits has fallen below the $500 Million Threshold, and that 
such carrying broker-dealer will switch from a daily computation to a 
weekly computation.
3. Notification Requirement To Voluntarily Perform Daily Customer 
Reserve Computation With 2% Debit Reduction
    Based on a review of FOCUS Report data for the calendar year 2023, 
the Commission estimates that 9 carrying broker-dealers that are above 
the $500 Million Threshold already voluntarily perform daily customer 
reserve computations.\420\ The Commission estimates that these nine 
carrying broker-dealers will notify their DEA of their intent to 
continuing to perform daily customer reserve computations voluntarily 
pursuant to paragraph (e)(3)(v) of Rule 15c3-3. Additionally, the 
Commission estimates that an additional 6 carrying broker-dealers that 
have significant debit balances may voluntarily elect to perform daily 
customer reserve computations in order to deduct 2% of aggregate debit 
items instead of 3% in connection with the computation. Consequently, 
the Commission estimates that there are 15 respondents associated with 
this collection of information.
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    \420\ Based on FOCUS data for the year ending December 31, 2023, 
the Commission estimates that 10 carrying broker-dealers perform 
daily customer reserve computations. Of these 10 carrying broker-
dealers, the Commission estimates that 9 exceed the $500 Million 
Threshold. The one carrying broker-dealer that does not exceed the 
$500 Million Threshold also does not compute net capital pursuant to 
Rule 15c3-1(a)(ii)(A), and therefore would not be eligible to avail 
itself of the 2% debit reduction.
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D. Total Annual Burden Estimate

1. Recordkeeping Requirements
    Carrying broker-dealers subject to the requirement to perform daily 
customer and PAB reserve computations under the final amendments were 
previously required to perform such computations weekly. Under 
preexisting paragraph (e)(3)(v) of Rule 15c3-3, carrying broker-dealers 
subject to the requirement to perform customer and PAB reserve 
computations are also subject to the requirement to make and maintain a 
record of each such computation and to preserve it in accordance with 
Rule 17a-4.\421\ Carrying broker-dealers are able to elect to maintain 
the required record of the customer and PAB reserve computation in a 
physical (i.e., paper format) or electronic format under the record 
preservation requirements of Rule 17a-4, but given the size and 
sophistication of carrying broker-dealers subject to the requirement to 
perform daily customer and PAB reserve computations, and the nature of 
the actual computations, based on staff experience with carrying 
broker-dealer operations, the Commission estimates that carrying 
broker-dealers subject to the requirement to perform daily customer and 
PAB reserve computations will likely have electronic systems, including 
electronic recordkeeping systems meeting the record preservation 
requirements of Rule 17a-4, in place and will use those systems to make 
and maintain, and preserve the record of the computations in electronic 
format. Because these electronic recordkeeping systems are part of the 
record preservation requirements of Rule 17a-4, the costs of those 
systems are accounted for in the collection of information for Rule 
17a-4 because broker-dealers use these systems for their overall 
recordkeeping.
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    \421\ See paragraph (e)(v) of Rule 15c3-3 and 17 CFR 240.17a-4 
(``Rule 17a-4''). Paragraph (e)(3)(v) of preexisting Rule 15c3-3 
will be renumbered as paragraph (e)(3)(vi) of Rule 15c3-3 as part of 
the final amendments. Rule 17a-4 sets forth record preservation 
requirements for physical records as well as for records maintained 
in electronic format but does not specify the format in which a 
carrying broker-dealer must maintain required records, though 
certain requirements related to electronic recordkeeping systems are 
set forth in the rule. See, e.g., paragraph (f)(2) of Rule 17a-4 
(establishing minimum requirements for an electronic recordkeeping 
system). The costs for these electronic recordkeeping systems are 
contained in the PRA collection for Rule 17a-4.
---------------------------------------------------------------------------

    Because carrying broker-dealers already have in place processes, 
personnel, and the systems and technology necessary to meet the record 
preservation requirements of Rule 17a-4, including for the purpose of 
making and maintaining the record of the customer and PAB reserve 
computations, and preserving such records in compliance with Rule 17a-
4, they will not need to hire additional staff or upgrade or develop 
new technology or systems, and have already expended the time, effort, 
and/or financial resources to generate and maintain the required 
records.\422\ Therefore, the Commission estimates that the amendments 
will not impose any new one-time burdens or start-up costs (e.g., 
hardware acquisition, cloud storage costs, systems/tech upgrades, tech 
services, etc.) on carrying broker-dealers to set up the process of 
creating the required record of such computations.
---------------------------------------------------------------------------

    \422\ As discussed in the Economic Analysis in section IV.C. of 
this release, carrying broker-dealers may be required to incur 
increased initial start-up compliance costs to comply with the 
requirement to perform a daily customer and PAB reserve computation 
under the final amendments. A carrying broker-dealer may incur these 
initial start-up compliance costs while implementing operational 
changes, potentially increasing staff, and upgrading systems and 
internal controls and infrastructure in order to facilitate the 
increased frequency of computations and accelerate the coordination 
of staff involved in providing the required information. These 
economic effects are not in the PRA and are discussed in the 
Economic Analysis in section IV.C. of this release.
---------------------------------------------------------------------------

    Instead, the amendments will impose increased ongoing burdens on 
the respondent carrying broker-dealers because they must increase the 
frequency of the customer and PAB reserve computations and, therefore, 
must make, maintain, and preserve additional records of the 
computations. Specifically, there will be an increase in the burdens 
associated with the collections of information titled ``Rule 15c3-
3(e)(3)--daily computations'' for

[[Page 2834]]

both the customer and PAB reserve computations, and a corresponding 
decrease in the burdens associated with the collections of information 
titled ``Rule 15c3-3(e)(3)--weekly computations'' for the customer and 
PAB reserve computations as certain carrying broker-dealers will shift 
from weekly to daily computations in connection with the amendments. 
Based on experience with customer and PAB reserve computations, the 
Commission estimates that it takes between one and five hours to make a 
record of each such computation, and that the average time spent across 
all carrying broker-dealers is 2.5 hours.\423\
---------------------------------------------------------------------------

    \423\ This is consistent with the current collection of 
information for the customer and PAB reserve computations, available 
at https://www.reginfo.gov/public/do/DownloadDocument?objectID=132914201. The estimate is also based on 
the Commission's experience with other recordkeeping requirements. 
For example, the current estimated burden related to the requirement 
to maintain records pursuant to Rule 17a-3 (17 CFR 240.17a-3)(``Rule 
17a-3'') is 1 hour per day, or 249 hours per year (based on 249 
business days for that year) for each registered broker-dealer. This 
includes the requirement that a broker-dealer make a record of the 
broker-dealer's computations for aggregate indebtedness and net 
capital. See Supporting Statement for Rule 17a-3, available at 
https://www.reginfo.gov/public/do/DownloadDocument?objectID=123585601. See also paragraph (a)(11) of 
Rule 17a-3.
---------------------------------------------------------------------------

    The Commission received one comment on this estimate stating that 
the Proposing Release does not state a basis for this 2.5 hour estimate 
and that the estimate is so wide of the mark that it cannot support the 
Commission's analysis of paperwork burdens (or costs, burdens, and 
effects on competition of the proposal). This commenter stated that 
each weekly calculation takes approximately 10 hours and that during 
these 10 hours more than 50 employees are involved in some part of the 
data collection, performing calculations, verifying figures, and 
transferring funds to banks that are part of performing the reserve 
computations.\424\ In response, the specific tasks the commenter listed 
do not specify what amount of the 10 hours is dedicated to making, 
maintaining, and preserving a record of the computation, as required by 
Rule 15c3-3. Instead, the tasks the commenter listed relate to the 
steps necessary to perform a computation. The 2.5 hours is based on 
staff experience with customer and PAB reserve computations and 
recordkeeping requirements and staff's understanding that these records 
are made, maintained, and preserved either in an electronic format or 
as a paper copy. Some carrying broker-dealers may take more time, while 
others may take less time to make, maintain and preserve a record of 
the computations. As a result, the 2.5 hour burden estimate is the 
estimate of the time it takes a carrying broker-dealer to make a record 
of the computation for purposes of the PRA.\425\ As noted above, 
carrying broker-dealers already have in place the personnel, systems, 
and technology in place to make, maintain, and preserve the required 
records and to comply with the record preservation requirements of Rule 
17a-4. As a result, the Commission is retaining the estimate of 2.5 
hours for purposes of the PRA.\426\
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    \424\ See Raymond James Letter at 3, n.9. See also SIFMA Letter 
at 4. These commenters stated the 2.5-hour figure underestimates the 
actual burden associated with fulfilling current requirements. Id. 
These commenters also stated that carrying broker-dealers subject to 
the requirement to perform daily customer and PAB reserve 
computations will be required to hire and train additional 
employees, devote the full-time efforts of these personnel to 
performing the required daily computations, and to update or 
implement new systems and processes to comply with the daily 
computation requirements. See Raymond James Letter at 4. See also 
SIFMA Letter at 5. The costs associated with increases in personnel 
and changes or upgrades to systems and processes are not 
recordkeeping burdens for the purposes of this PRA analysis and are 
instead discussed as part of the Economic Analysis. See supra 
section IV.C. of this release.
    \425\ This estimated burden involves the time it takes an 
employee such as a financial reporting manager to make, maintain, 
and preserve a record of the reserve computation and the supporting 
details of each credit and debit in the applicable reserve 
computation. The estimated range of 1 to 5 hours considers that 
smaller carrying broker-dealers may choose to print out paper copies 
of the computation and supporting details on a computer to comply 
with the recordkeeping requirement. Larger carrying broker-dealers 
may need additional time to make the record in their preexisting 
electronic recordkeeping system to maintain and preserve it in a 
format to meet the electronic preservation requirements of Rule 17a-
4. Consequently, a 2.5 hour estimate is used. Therefore, the 
increase in the recordkeeping burden is accounted for in the 2.5 
hour estimate and the increase in respondents for the daily reserve 
computations.
    \426\ Costs of the amendments outside of the PRA are discussed 
in the Economic Analysis in section IV.C of this release.
---------------------------------------------------------------------------

    Consequently, the Commission estimates that the amendments will 
impose aggregate annual ongoing burdens on respondent carrying broker-
dealers required to perform daily customer and PAB reserve computations 
of 25,000 hours and 21,875 hours, respectively, or a total of 46,875 
hours.\427\ When added to the currently approved burden hours of 9,375 
hours and 6,875 hours for the customer and PAB reserve computations, 
respectively, the revised burden hour estimates are 34,375 hours for 
the daily customer reserve computation, and 28,750 hours for the daily 
PAB reserve computation.
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    \427\ This figure was calculated as follows: 40 respondent 
carrying broker-dealers that are required to perform daily customer 
reserve computations x 2.5 hours/day x 250 business days = 25,000 
hours, plus 35 respondent carrying broker-dealers that are required 
to perform daily PAB reserve computations x 2.5 hours/day x 250 
business days = 21,875 hours. Therefore, the total estimated burden 
is 25,000 hours + 21,875 hours = 46,875 hours. See also supra note 
355 and the accompanying text (discussing the annual economic cost 
for one carrying broker-dealer associated with the recordkeeping 
requirements of the amendments to Rule 15c3-3).
---------------------------------------------------------------------------

    In addition to this increase, the Commission estimates that there 
will be a corresponding decrease in the collections of information 
titled ``Rule 15c3-3(e)(3)--weekly computations'' for both the customer 
and PAB reserve computations. Specifically, the Commission estimates 
that the amendments will result in a revised burden hour estimate of 
15,730 hours with respect to weekly customer reserve computations \428\ 
(a decrease of 5,200 hours \429\), and 5,460 hours with respect to the 
weekly PAB reserve computations \430\ (a decrease of 4,550 hours 
\431\).
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    \428\ This figure was calculated as follows: 161 respondents 
currently approved under the information collection related to 
weekly customer reserve computations titled ``Rule 15c3-3(e)(3)--
weekly computations'' minus the 40 respondent carrying broker-
dealers that are required under the adopted amendments to perform 
daily customer reserve computations = 121 respondents x 2.5 hours x 
52 responses annually = 15,730 hours.
    \429\ This figure was calculated as follows: 20,930 burden hours 
currently approved with respect to the collection of information 
related to weekly customer reserve computations minus the revised 
estimate of 15,730 hours resulting from fewer respondents performing 
weekly computations = 5,200 hours.
    \430\ This figure was calculated as follows: 77 respondents 
currently approved under the information collection related to 
weekly PAB reserve computations titled ``Rule 15c3-3(e)(3)--weekly 
computations'' minus the 35 respondent carrying broker-dealers that 
are required under the adopted amendments to perform daily PAB 
reserve computations = 34 respondents x 2.5 hours x 52 responses 
annually = 5,460 hours.
    \431\ This figure was calculated as follows: 10,010 burden hours 
currently approved with respect to the collection of information 
related to weekly PAB reserve computations minus the revised 
estimate of 5,460 hours resulting from fewer respondents performing 
weekly computations = 4,550 hours.
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2. Notification Requirement To Revert to Weekly Computations
    Based on its experience with other notification requirements, in 
the Proposing Release, the Commission estimated that it will take a 
carrying broker-dealer 30 minutes to prepare and send the notification 
regarding its election to perform weekly customer and PAB reserve 
computations to its DEA. The Commission did not receive comments on the 
estimate and is adopting it as proposed. This burden represents a new 
collection of information. The Commission estimates that relatively few 
carrying broker-dealers will send the notice either because their 
average total credits will be substantially greater than the $500

[[Page 2835]]

Million Threshold or because they will continue to perform daily 
computations, even if their average total credits fall below the $500 
Million Threshold, given the liquidity benefits of performing a daily 
computation. Consequently, the Commission estimates that one carrying 
broker-dealer per year will send the notice for a burden of 0.5 hours 
per year.\432\
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    \432\ One response per year x 0.5 hours per response = 0.5 
hours.
---------------------------------------------------------------------------

3. Notification Requirement To Voluntarily Perform Daily Customer 
Reserve Computation With 2% Debit Reduction
    Based on its experience with other notification requirements, the 
Commission estimates that it will take a carrying broker-dealer 30 
minutes to prepare and send the notification regarding its election to 
voluntarily perform a daily customer reserve computation. This burden 
represents a new collection of information. The Commission estimates 
that there are 15 respondents: 9 in the first year; 3 in the second 
year; and 3 in the third year, or alternatively, 5 respondents per year 
on average. Consequently, the Commission estimates that this will 
result in an annualized burden of approximately 2.5 hours per 
year.\433\
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    \433\ (Nine responses in year 1 x 0.5 hours per response) + (3 
responses in year 2 x 0.5 hours per response) + (3 responses in year 
3 x 0.5 hours per response) or 4.5 hours + 1.5 hours + 1.5 hour = 
7.5 hours. Over three years the annualized burden would be 7 hours/3 
years = 2.5 hours per year. Alternatively, (5 respondents per year x 
0.5 hours per response) = 2.5 hours per year.
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4. Summary of the Burden Revisions \434\
---------------------------------------------------------------------------

    \434\ OMB Control No. 3235-0078 for Rule 15c3-3 includes thirty 
separate information collections. This summary shows only those 
information collections that are being revised as a result of the 
amendments.
---------------------------------------------------------------------------

    As a result of the amendments, the Commission estimates that the 
burdens associated with the requirement to make, maintain, and preserve 
a record of the daily customer reserve computations will increase by 
25,000 hours and the burdens associated with the requirement to make, 
maintain, and preserve a record of the daily PAB reserve computations 
will increase by 21,875 hours. This increase will be accompanied by a 
decrease in burdens associated with the recordkeeping requirement for 
weekly customer and PAB reserve computations of 5,200 hours and 4,550 
hours,\435\ respectively, as carrying broker-dealers with average total 
credits that exceed the $500 Million Threshold shift from performing 
the customer and PAB reserve computations weekly to daily.
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    \435\ See supra notes 354-356 and the accompanying text 
(discussing the economic costs associated with the recordkeeping 
requirements of the amendments to Rule 15c3-3). The net increase in 
estimated annual burdens associated with the requirement to make, 
maintain, and preserve a record of the daily customer and reserve 
computations is estimated to be hours (25,000 hours + 21,875 hours)-
(5,200 hours + 4,550 hours) = 37,125 hours. The 37,125 net increase, 
plus the increase in 3 hours (0.5 hours and 2.5 hours) for the new 
notification requirement totals a net increase in estimated annual 
burden hours of 37,128 hours.
---------------------------------------------------------------------------

    Additionally, a new collection of information related to the 
notification requirement for carrying broker-dealers reverting to 
weekly customer and PAB reserve computations will result in an 
additional 0.5 burden hours per year.
    Lastly, a new collection of information related to the notification 
requirement for carrying broker-dealers electing to voluntarily perform 
daily customer reserve computations and to reduce aggregate debit items 
by 2% instead of 3% will result in an additional 2.5 burden hours per 
year.
    The net increase in estimated annual burdens associated with the 
amendments to Rule 15c3-3, as adopted, is estimated to be 37,128 hours. 
The table below summarizes these changes.

----------------------------------------------------------------------------------------------------------------
                                                    Currently approved    Estimated increase/
                                                     estimated annual     decrease in annual     Revised annual
          Name of information collection              industry burden       industry burden     industry burden
                                                          (hours)               (hours)             (hours)
----------------------------------------------------------------------------------------------------------------
Rule 15c3-3(e)(3)--daily computations for                         9,375                25,000             34,375
 customer reserve account \1\....................
Rule 15c3-3(e)--daily computations for PAB                        6,875                21,875             28,750
 reserve account.................................
Rule 15c3-3(e)(3)--weekly computations for                       20,930               (5,200)             15,730
 customer reserve account \2\....................
Rule 15c3-3(3)(3)--weekly computations for PAB                   10,010               (4,550)              5,460
 reserve account.................................
Rule 15c3-3(e)(i)(B)(2) notification.............                   N/A                   0.5                0.5
Rule 15c3-3(e)...................................                   N/A                   2.5                2.5
                                                  --------------------------------------------------------------
    Total Change:................................  ....................                37,128
----------------------------------------------------------------------------------------------------------------
\1\ In the most recently approved supporting statement for Rule 15c3-3, the titles of the collections of
  information related to daily customer and PAB reserve computations are both listed as ``Rule 15c3-3(e)(3)--
  daily computations.'' The Commission is revising the titles of these collections of information as set forth
  in this table in order to clarify that they are distinct collections of information.
\2\ In the most recently approved supporting statement for Rule 15c3-3, the titles of the collections of
  information related to weekly customer and PAB reserve computations are both listed as ``Rule 15c3-3(e)(3)--
  weekly computations.'' The Commission is revising the titles of these collections of information as set forth
  in this table in order to clarify that they are distinct collections of information.

E. Collections of Information Are Mandatory

    The collections of information under the amendments to Rule 15c3-3 
are mandatory as to the carrying broker-dealers that are subject to 
them.

F. Confidentiality of Response to Collections of Information

    The Commission expects to receive confidential information in 
connection with the collections of information. A carrying broker-
dealer requested by the Commission to produce records related to the 
amendments under Rule 15c3-3 could request confidential treatment of 
the information.\436\ If a confidential treatment request were made, 
the Commission anticipates that it would keep the information 
confidential subject to applicable law.\437\
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    \436\ See 17 CFR 200.83. Information regarding requests for 
confidential treatment of information submitted to the Commission is 
available on the Commission's website at https://www.sec.gov/foia/howfo2.htm#privacy.
    \437\ See, e.g., 15 U.S.C. 78x (governing the public 
availability of information obtained by the Commission); 5 U.S.C. 
552 et seq.
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G. Retention Period for Recordkeeping Requirements

    The record of the customer and PAB reserve computations must be 
preserved in accordance with the requirements of Rule 17a-4.\438\ 
Written notifications from carrying broker-dealers electing to compute 
the customer and PAB reserve computations weekly after being subject to 
the daily requirement, and notifications from carrying broker-

[[Page 2836]]

dealers that elect to perform a daily customer reserve computation and 
use the 2% debit reduction will be submitted to the carrying broker-
dealer's DEA. These notices constitute communications relating to a 
carrying broker-dealer's ``business as such'' and, therefore, will need 
to be retained for three years.\439\
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    \438\ See paragraph (e)(3)(v) of Rule 15c3-3; Rule 17a-4.
    \439\ See paragraph (b)(4) of Rule 17a-4.
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VI. Regulatory Flexibiliy Act Certification

    The Regulatory Flexibility Act (``RFA'') requires the Commission, 
in promulgating rules, to consider the impact of those rules on small 
entities.\440\ Section 603(a) of the Administrative Procedure Act,\441\ 
as amended by the RFA, generally requires the Commission to undertake a 
regulatory flexibility analysis of all proposed rules to determine the 
impact of such rulemaking on ``small entities.'' \442\ Section 605(b) 
of the RFA states that this requirement shall not apply to any proposed 
rule which, if adopted, would not have a significant economic impact on 
a substantial number of small entities.\443\ In the Proposing Release, 
the Commission certified that the proposed amendments to Rule 15c3-3 
would not have a significant economic impact on a substantial number of 
small entities for purposes of the RFA.\444\ The Proposing Release 
solicited comment on the certification. The Commission received no 
comments on this certification.
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    \440\ See 5 U.S.C. 601 et seq.
    \441\ 5 U.S.C. 603(a).
    \442\ Section 601(b) of the RFA permits agencies to formulate 
their own definitions of ``small entities.'' See 5 U.S.C. 601(b). 
The Commission has adopted definitions for the term ``small entity'' 
for the purposes of rulemaking in accordance with the RFA. These 
definitions, as relevant to this rulemaking, are set forth in 17 CFR 
240.0-10 (``Rule 0-10'').
    \443\ See 5 U.S.C. 605(b).
    \444\ See Proposing Release, 88 FR at 45862.
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    For purposes of Commission rulemaking in connection with the RFA, a 
small entity includes a broker-dealer that: (1) had total capital (net 
worth plus subordinated liabilities) of less than $500,000 on the date 
in the prior fiscal year as of which its audited financial statements 
were prepared pursuant to paragraph (d) of 17 CFR 240.17a-5 (``Rule 
17a-5(d)''),\445\ or, if not required to file such statements, a 
broker-dealer with total capital (net worth plus subordinated 
liabilities) of less than $500,000 on the last business day of the 
preceding fiscal year (or in the time that it has been in business, if 
shorter); and (2) is not affiliated with any person (other than a 
natural person) that is not a small business or small 
organization.\446\
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    \445\ 17 CFR 240.17a-5(d).
    \446\ See 17 CFR 240.0-10(c).
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    The amendments to Rule 15c3-3 will require certain carrying broker-
dealers to perform the customer and PAB reserve computations daily 
rather than weekly. The amendments to Rule 15c3-3 also will permit 
carrying broker-dealers below the $500 Million Threshold to voluntarily 
perform a daily customer reserve computation and to reduce aggregate 
debit items in such computation by 2% instead of 3%. Further, the 
amendments to Rule 15c3-1 will permit carrying broker-dealers that are 
required to perform a daily customer reserve computation to reduce 
aggregate debit items in such computation by 2% instead of 3%. Finally, 
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%. The amendments to Rules 15c3-3 and 15c3-1 and 
the FOCUS Report only will impact carrying broker-dealers.
    Based on FOCUS Report data, the Commission estimates that as of 
December 31, 2023, there were approximately 735 broker-dealers that 
were ``small'' for the purposes of Rule 0-10. The Commission estimates 
that none of these small broker-dealers is a carrying broker-dealer. As 
a result, the amendments likely will not apply to small broker-dealers. 
Therefore, the amendments will not have a significant impact on a 
substantial number of small broker-dealers.
    For the foregoing reasons, the Commission certifies that the 
amendments will not have a significant economic impact on a substantial 
number of small entities for purposes of the RFA.

VII. Other Matters

    The Commission considers the provisions of the final amendments to 
be severable to the fullest extent permitted by law. ``If parts of a 
regulation are invalid and other parts are not,'' courts ``set aside 
only the invalid parts unless the remaining ones cannot operate by 
themselves or unless the agency manifests an intent for the entire 
package to rise or fall together.'' Bd. of Cnty. Commissioners of Weld 
Cnty. v. EPA, 72 F.4th 284, 296 (D.C. Cir. 2023); see K Mart Corp. v. 
Cartier, Inc., 486 U.S. 281, 294 (1988). ``In such an inquiry, the 
presumption is always in favor of severability.'' Cmty. for Creative 
Non-Violence v. Turner, 893 F.2d 1387, 1394 (D.C. Cir. 1990). 
Consistent with these principles, while the Commission believes that 
all provisions of the final amendments are fully consistent with 
governing law, if any of the provisions of these rules, or the 
application thereof to any person or circumstance, is held to be 
invalid, such invalidity shall not affect other provisions or 
application of such provisions to other persons or circumstances that 
can be given effect without the invalid provision or application.
    Pursuant to the Congressional Review Act, the Office of Information 
and Regulatory Affairs has designated these rules as a ``major rule,'' 
as defined by 5 U.S.C. 804(2).

Statutory Authority

    The Commission is adopting amendments contained in this release 
under the Commission's rulemaking authority pursuant to the Exchange 
Act, 15 U.S.C. 78a et seq., and particularly, sections 15 and 23(a) (15 
U.S.C. 78o and 78w(a)), thereof.

List of Subjects

17 CFR Part 240

    Reporting and recordkeeping requirements, Securities.

17 CFR Part 249

    Brokers, Investment companies, Reporting and recordkeeping 
requirements, Securities.

Text of Amendments

    In accordance with the foregoing, title 17, chapter II of the Code 
of Federal Regulations is amended as follows:

PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF 
1934

0
1. The authority citation for part 240 continues to read, in part, as 
follows:

    Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3, 
77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78c-3, 78c-5, 78d, 78e, 78f, 
78g, 78i, 78j, 78j-1, 78j-4, 78k, 78k-1, 78l, 78m, 78n, 78n-1, 78o, 
78o-4, 78o-10, 78p, 78q, 78q-1, 78s, 78u-5, 78w, 78x, 78dd, 78ll, 
78mm, 80a-20, 80a-23, 80a-29, 80a-37, 80b-3, 80b-4, 80b-11, 
1681w(a)(1), 6801-6809, 6825, 7201 et seq., and 8302; 7 U.S.C. 
2(c)(2)(E); 12 U.S.C. 5221(e)(3); 18 U.S.C. 1350; Pub. L. 111-203, 
939A, 124 Stat. 1376 (2010); and Pub. L. 112-106, sec. 503 and 602, 
126 Stat. 326 (2012), unless otherwise noted.
* * * * *
    Section 240.15c3-3 is also issued under 15 U.S.C. 78c-5, 
78o(c)(2), 78(c)(3), 78q(a), 78w(a); sec. 6(c), 84 Stat. 1652; 15 
U.S.C. 78fff.
* * * * *

0
2. Section 240.15c3-1 is amended by revising paragraph (a)(1)(ii)(A) to 
read as follows:

[[Page 2837]]

Sec.  240.15c3-1  Net capital requirements for brokers or dealers.

    (a) * * *
    (1) * * *
    (i) * * *
    (ii) * * *
    (A) Make the computation required by Sec.  240.15c3-3(e) and set 
forth in Exhibit A, Sec.  240.15c3-3a, on a weekly basis and, in lieu 
of the 1% reduction of certain debit items required by Note E (3) in 
the computation of its Exhibit A requirement, reduce aggregate debit 
items in such computation by 3%; provided, however, that, if a broker 
or dealer is required to make the computation required by Sec.  
240.15c3-3(e) and set forth in Exhibit A, Sec.  240.15c3-3a, on a daily 
basis, the broker or dealer may reduce aggregate debit items in such 
computation by 2%;
* * * * *

0
3. Section 240.15c3-3 is amended by revising paragraphs (e)(3)(i), 
(iv), and (v) and adding paragraph (e)(3)(vi) to read as follows:


Sec.  240.15c3-3  Customer protection--reserves and custody of 
securities.

* * * * *
    (e) * * *
    (3) * * *
    (i)(A) Except as provided in paragraphs (e)(3)(i)(B)(1) and (C) of 
this section, computations necessary to determine the amount required 
to be deposited in the Customer Reserve Bank Account and PAB Reserve 
Bank Account as specified in paragraph (e)(1) of this section must be 
made weekly, as of the close of the last business day of the week, and 
the deposit so computed must be made no later than one hour after the 
opening of banking business on the second following business day.
    (B)(1) A broker or dealer with average total credits that are equal 
to or greater than $500 million must make the computations necessary to 
determine the amount required to be deposited in the Customer Reserve 
Bank Account and PAB Reserve Bank Account, as specified in paragraph 
(e)(1) of this section, daily as of the close of the previous business 
day, and the deposit so computed must be made no later than one hour 
after the opening of banking business on the second following business 
day. A broker or dealer must comply with this paragraph (e)(3)(i)(B)(1) 
no later than six months after having average total credits equal to or 
greater than $500 million and until such time as it has average total 
credits of less than $500 million and 60 days after having provided the 
60-day notice required by paragraph (e)(3)(i)(B)(2) of this section. 
For purposes of this paragraph (e)(3), average total credits means the 
arithmetic mean of the sum of Total Credits in the Customer Reserve 
Bank Account computation and the PAB Reserve Bank Account computation 
reported in the 12 most recently filed month-end Forms X-17A-5.
    (2) A broker or dealer computing the Customer Reserve Bank Account 
computation and the PAB Reserve Bank Account computation daily under 
paragraph (e)(3)(i)(B)(1) of this section whose average total credits 
falls below $500 million may elect to compute the Customer Reserve Bank 
Account and the PAB Reserve Bank Account computation weekly under 
paragraph (e)(3)(i)(A) of this section. Such broker or dealer must 
notify its designated examining authority, in writing, of this election 
at least 60 calendar days before computing the Customer Reserve Bank 
Account and the PAB Reserve Bank Account computation weekly under 
paragraph (e)(3)(i)(A) of this section.
    (C) A broker or dealer which has aggregate indebtedness not 
exceeding 800% of net capital (as defined in Sec.  240.15c3-1) and 
which carries aggregate customer funds (as defined in paragraph (a)(10) 
of this section), as computed at the last required computation pursuant 
to this section, not exceeding $1,000,000, may in the alternative make 
the Customer Reserve Bank Account computation monthly, as of the close 
of the last business day of the month, and, in such event, must deposit 
not less than 105% of the amount so computed no later than one hour 
after the opening of banking business on the second following business 
day.
* * * * *
    (iv) Computations in addition to the computations required in this 
paragraph (e)(3), other than computations made under paragraph 
(e)(3)(i)(B)(1) of this section, 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 opening of banking business on the second following 
business day.
    (v) A broker or dealer may elect to voluntarily compute the 
Customer Reserve Bank Account computation daily under paragraph 
(e)(3)(iv) of this section and reduce aggregate debit items in such 
computation by 2% under Sec.  240.15c3-1(a)(ii)(A). Such broker or 
dealer must notify its designated examining authority, in writing, of 
its election to operate under this paragraph (e)(3)(v) at least 30 
calendar days before beginning such computation. If a broker or dealer 
has notified the broker or dealer's designated examining authority of 
its election to operate under this paragraph (e)(3)(v), the broker or 
dealer must continue to compute the Customer Reserve Bank Account 
computation daily unless a change is approved by its designated 
examining authority.
    (vi) The broker or dealer must make and maintain a record of each 
such computation made pursuant to this paragraph (e)(3) or otherwise 
and preserve each such record in accordance with Sec.  240.17a-4.
* * * * *

PART 249--FORMS, SECURITIES EXCHANGE ACT OF 1934

0
4. The authority citation for part 249 continues to read, in part, as 
follows:

    Authority: 15 U.S.C. 78a et seq. and 7201 et seq.; 12 U.S.C. 
5461 et seq.; 18 U.S.C. 1350; Sec. 953(b) Pub. L. 111-203, 124 Stat. 
1904; Sec. 102(a)(3) Pub. L. 112-106, 126 Stat. 309 (2012), Sec. 107 
Pub. L. 112-106, 126 Stat. 313 (2012), Sec. 72001 Pub. L. 114-94, 
129 Stat. 1312 (2015), and secs. 2 and 3 Pub. L. 116-222, 134 Stat. 
1063 (2020), unless otherwise noted.
* * * * *
    Section 249.617 is also issued under Pub. L. 111-203, 939, 939A, 
124. Stat. 1376 (2010) (15 U.S.C. 78c, 15 U.S.C. 78o-7 note).
* * * * *

0
5. Amend Part II of the Form X-17A-5 (referenced in Sec.  249.617) by 
revising the Computation for Determination of Customer Reserve 
Requirements section as shown in Appendix 1.

    Note:  The Computation for Determination of Customer Reserve 
Requirements in Part II of Form X-17A-5 is attached as Appendix 1 to 
this document. Form X-17A-5 will not appear in the Code of Federal 
Regulations.


    By the Commission.

    Dated: December 20, 2024.
Vanessa A. Countryman,
Secretary.


    Note: The following appendix containing the text of Part II of 
Form X-17A-5 and the instructions thereto do not, and these 
amendments will not, appear in the Code of Federal Regulations.

Appendix 1

* * * * *
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[[Page 2838]]

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[[Page 2839]]


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* * * * *
[FR Doc. 2024-31178 Filed 1-10-25; 8:45 am]
BILLING CODE 8011-01-C`