Document ID: SEC-2013-1756-0001
Agency: sec
Document Type: Notice
Title: Temporary Exemptions: Financial Responsibility Rules for Broker-Dealers under the Securities Exchange Act
Posted Date: 2013-10-22T04:00Z

[Federal Register Volume 78, Number 204 (Tuesday, October 22, 2013)]
[Notices]
[Pages 62930-62931]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-24609]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70701]

Order Providing Broker-Dealers a Temporary Exemption From the 
Requirements of Certain New Amendments to the Financial Responsibility 
Rules for Broker-Dealers Under the Securities Exchange Act of 1934

October 17, 2013.

I. Background

    On July 30, 2013, the Securities and Exchange Commission 
(``Commission'') voted to adopt amendments to the broker-dealer net 
capital rule (Rule 15c3-1),\1\ customer protection rule (Rule 15c3-
3),\2\ books and records rules (Rules 17a-3 and 17a-4),\3\ and 
notification rule (Rule 17a-11) \4\ promulgated under the Securities 
Exchange Act of 1934 (``Exchange Act''). The amendments are designed to 
address several areas of concern regarding the financial responsibility 
requirements for broker-dealers. The adopting release provided that the 
amendments are effective on October 21, 2013.\5\
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    \1\ 17 CFR 240.15c3-1.
    \2\ 17 CFR 240.15c3-3.
    \3\ 17 CFR 240.17a 3 and 17a 4.
    \4\ 17 CFR 240.17a 11. Financial Responsibility Rules for 
Broker-Dealers, Exchange Act Release No. 70072 (July 30, 2013), 78 
FR 51824 (Aug. 21, 2013).
    \5\ Financial Responsibility Rules for Broker-Dealers, Exchange 
Act Release No. 70072 (July 30, 2013), 78 FR 51824 (Aug. 21, 2013).
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    Industry representatives have indicated through physical and 
telephonic meetings with Commission staff that, as broker-dealers have 
worked to meet the October 21, 2013 effective date, some have 
determined that they will be unable to complete by that date the 
significant operational and systems changes necessary to comply with 
certain of the final rule amendments. For example, broker-dealers that 
maintain custody of customer securities and cash (a ``carrying broker-
dealer'') have said they are unable to comply with the requirements of 
paragraph (e)(5) of Rule 15c3-3 by the current effective date. This 
provision places restrictions on a carrying broker-dealer's ability to 
use cash bank deposits to meet customer or PAB reserve deposit 
requirements by excluding cash deposits held at an affiliated bank and 
limiting cash held at non-affiliated banks to an amount no greater than 
15% of the bank's equity capital, as reported by the bank in its most 
recent Call Report.\6\ These carrying broker-dealers indicated that it 
would be a challenge to open new reserve accounts and make the 
appropriate systems changes by October 21, 2013 because, in part, 
negotiating new reserve account deposit agreements and obtaining 
acknowledgement letters required by paragraph (f) of Rule 15c3-3 from 
new banks generally take significantly more time than the 60 days 
afforded under the final rule amendments.
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    \6\ See paragraph (e)(5) of Rule 15c3-3, as adopted. See also 
Financial Responsibility Rules for Broker-Dealers, 78 FR at 51904. 
The final rules define the term PAB account to mean a proprietary 
securities account of a broker or dealer (which includes a foreign 
broker or dealer, or a foreign bank acting as a broker or dealer) 
other than a delivery-versus-payment account or a receipt-versus-
payment account. The term does not include an account that has been 
subordinated to the claims of creditors of the carrying broker or 
dealer. See paragraph (a)(16) of Rule 15c3-3, as adopted. See also 
Financial Responsibility Rules for Broker-Dealers, 78 FR at 51903.
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    Further, broker-dealers have indicated that 60 days is insufficient 
for implementing the system changes necessary for the customer account 
opening documentation and processes, as well as account notices and 
disclosures, required in connection with new requirements under 
paragraph (j)(2) to Rule 15c3-3 regarding the treatment of customers' 
free credit balances. Additionally, broker-dealer representatives have 
indicated that some broker-dealers may need additional time to 
completely and accurately document their market, credit, and liquidity 
risk management controls under new paragraph (a)(23) to Rule 17a-3.\7\
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    \7\ See paragraph (a)(23) of Rule 17a-3, as adopted and 
paragraph (e)(9) of Rule 17a-4, as adopted. See also Financial 
Responsibility Rules for Broker-Dealers, 78 FR at 51907.
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    Therefore, the Commission has determined to provide a temporary 
exemption to broker-dealers from the requirements of the following new 
amendments to the broker-dealer financial responsibility rules adopted 
in Exchange Act Release No. 70072: (1) Rule 15c3-3, except paragraph 
(j)(1); \8\ (2) Rule 15c3-3a; (3) Rule 17a-3; (4) Rule 17a-4; and (5) 
paragraph (c)(2)(iv)(E)(2) of Rule 15c3-1.\9\ The

[[Page 62931]]

temporary exemption will sunset on March 3, 2014. This will facilitate 
an orderly transition to the new requirements by providing broker-
dealers with more time to make any necessary operational or systems 
changes. For example, industry representatives have indicated that many 
firms initiate freezes around the year end with respect to changing 
systems and codes. As a result of this temporary exemption, the 
Commission is directing the staff to delay from October 21, 2013 to 
March 3, 2014 the date for the withdrawal of the November 8, 1998 staff 
no-action letter that addresses the net capital treatment of 
proprietary accounts of introducing broker-dealers.\10\
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    \8\ As adopted paragraph (j)(1) of Rule 15c3-3 incorporates 
certain requirements from Rule 15c3-2 (customers' free credit 
balances), including the requirement that broker-dealers inform 
customers of the amounts due to them and that such amounts are 
payable on demand. Rule 15c3-2 is being eliminated as a separate 
rule because it is largely irrelevant in light of the requirements 
in Rule 15c3-3. See paragraph (j)(1) of Rule 15c3-3, as adopted. See 
also Financial Responsibility Rules for Broker-Dealers, 78 FR at 
51836-51837.
    \9\ As adopted paragraph (c)(2)(iv)(E)(2) of Rule 15c3-1 
provides that a broker-dealer need not deduct cash and securities 
held in a securities account at a carrying broker-dealer except 
where the account has been subordinated to the claims of creditors 
of the carrying broker-dealer. See paragraph (c)(2)(iv)(E)(2) of 
Rule 15c3-1, as adopted. See also Financial Responsibility Rules for 
Broker-Dealers, 78 FR at 51831-51832.
    \10\ See Letter of Michael A. Macchiaroli, Associate Director, 
Division of Market Regulation, Commission, to Raymond J. Hennessy, 
Vice President, NYSE, and Thomas Cassella, Vice President, NASD 
Regulation, Inc. (Nov. 3, 1998). See also Financial Responsibility 
Rules for Broker-Dealers, 78 FR at 51828 (directing the staff to 
withdraw the no-action letter as of the effective date of the 
amendments).
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    The Commission is not granting a temporary exemption from the 
remaining new requirements adopted in Exchange Act Release No. 70072: 
(1) The requirement in paragraph (j)(1) of Rule 15c3-3; (2) the new 
requirements in Rule 15c3-1 (other than the requirement in paragraph 
(c)(2)(iv)(E)(2) of Rule 15c3-1); (3) and the new requirements in Rule 
17a-11. Broker-dealers have not identified these requirements as 
presenting a challenge in terms of achieving compliance by October 21, 
2013. In addition, this temporary exemption does not apply to any other 
requirements in Rule 15c3-3, Rule 15c3-3a, Rule 17a-3, Rule 17a-4, or 
Rule 15c3-1.
    The effective date is quickly approaching, and granting a limited 
exemption until March 3, 2014 to broker-dealers from certain new 
requirements will help to facilitate an orderly implementation of the 
final rule amendments.
    For the foregoing reasons, the Commission finds that this temporary 
exemption is necessary and appropriate in the public interest, and is 
consistent with the protection of investors.\11\
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    \11\ Section 36 of the Exchange Act authorizes the Commission, 
by rule, regulation, or order, to conditionally or unconditionally 
exempt any person from any rule under the Exchange Act, to the 
extent that the exemption is necessary or appropriate in the public 
interest and is consistent with the protection of investors. 15 
U.S.C. 78mm.
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II. Conclusion

    Accordingly, pursuant to Section 36 of the Exchange Act,
    It is hereby ordered that broker-dealers are temporarily exempt 
until March 3, 2014 from the requirements of the following new 
amendments to the broker-dealer financial responsibility rules adopted 
in Exchange Act Release No. 70072: (1) Rule 15c3-3, except paragraph 
(j)(1); (2) Rule 15c3-3a; (3) Rule 17a-3; (4) Rule 17a-4; and (5) 
paragraph (c)(2)(iv)(E)(2) of Rule 15c3-1.

    By the Commission.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2013-24609 Filed 10-21-13; 8:45 am]
BILLING CODE 8011-01-P