Except where otherwise noted, § 240.15c3-3 applies to a broker or dealer registered under section 15(b) of the Act (15 U.S.C. 78o(b)), including a broker or dealer also registered as a security-based swap dealer or major security-based swap participant under section 15F(b) of the Act (15 U.S.C. 78o-10(b)). A security-based swap dealer or major security-based swap participant registered under section 15F(b) of the Act that is not also registered as a broker or dealer under section 15(b) of the Act is subject to the requirements under § 240.18a-4.
15c3-3(a) Definitions. For the purpose of this section:15c3-3(a)(1) The term customer shall mean any person from whom or on whose behalf a broker or dealer has received or acquired or holds funds or securities for the account of that person. The term shall not include a broker or dealer, a municipal securities dealer, or a government securities broker or government securities dealer. The term shall, however, include another broker or dealer to the extent that broker or dealer maintains an omnibus account for the account of customers with the broker or dealer in compliance with Regulation T (12 CFR 220.1 through 220.12). The term shall not include a general partner or director or principal officer of the broker or dealer or any other person to the extent that person has a claim for property or funds which by contract, agreement or understanding, or by operation of law, is part of the capital of the broker or dealer or is subordinated to the claims of creditors of the broker or dealer. In addition, the term shall not include a person to the extent that the person has a claim for security futures products held in a futures account, or any security futures product and any futures product held in a “proprietary account” as defined by the Commodity Futures Trading Commission in § 1.3(y) of this chapter. The term also shall not include a counterparty who has delivered collateral to an OTC derivatives dealer pursuant to a transaction in an eligible OTC derivative instrument, or pursuant to the OTC derivatives dealer's cash management securities activities or ancillary portfolio management securities activities, and who has received a prominent written notice from the OTC derivatives dealer that:
15c3-3(a)(1)(i) Except as otherwise agreed in writing by the OTC derivatives dealer and the counterparty, the dealer may repledge or otherwise use the collateral in its business;
15c3-3(a)(1)(ii) In the event of the OTC derivatives dealer's failure, the counterparty will likely be considered an unsecured creditor of the dealer as to that collateral;
15c3-3(a)(1)(iii) The Securities Investor Protection Act of 1970 (SIPA) does not protect the counterparty; and
15c3-3(a)(1)(iv) The collateral will not be subject to the requirements of § 240.8c-1, § 240.15c2-1, § 240.15c3-2, or § 240.15c3-3.
15c3-3(a)(1)/01 Customer/Non-Customer ClassificationCertain accounts shown on the books of the broker-dealer shall be classified as “customer” or “non-customer” as follows:
Customer
Non-Customer
Note: Pursuant to SEA Rule 15c3-3(a)(16), adopted under SEA Release No.70072 (July 30, 2013), certain previous classifications under “non-customer” are now defined as “PAB account.” However, for purposes of the customer reserve formula computation under SEA Rule 15c3-3a (Exhibit A) and the interpretations thereunder, references to “non-customer” will continue to include accounts which are defined as PAB accounts.
(SEC Releases 34-9922, January 2, 1973; 34-10429, October 12, 1973; 34-11854, November 20, 1975; 34-11969, January 2, 1976)
(SEC Letter to NASD, July 15, 1974) (SEC Staff to NYSE) (NYSE Interpretation Memo 78-1, May 1978)
(SEC Staff to NYSE) (NYSE Interpretation Memo 01-05, August 2001) (SEC Staff to FINRA) (FINRA Regulatory Notice 15-25)
(SEC Staff to FINRA) (FINRA Regulatory Notice 21-27)
15c3-3(a)(1)/011 Introduced Accounts of General Partners, Director or Principal Officers of Another Broker-Dealer
The individual securities accounts of another broker-dealer’s general partners directors or principal officers that are introduced on a fully disclosed basis are “customers” of the carrying broker-dealer.
In the event the account is that of an individually registered broker-dealer or of an individual who has a relationship with the carrying broker-dealer other than that of a client-customer, the account is a “non-customer” of the carrying broker-dealer.
(SEC Staff to NYSE) (NYSE Interpretation Memo 89-7, June 1989)
15c3-3(a)(1)/012 Proprietary Accounts of Foreign Broker-Dealer – (Rescinded)(FINRA Regulatory Notice 15-25)
15c3-3(a)(1)/013 Limited Liability Company/Limited Liability Corporation (LLC)
Any participant in a broker-dealer which is organized as a LLC, who performs a function similar to that of a general partner, director, or principal officer of a broker-dealer, such as a member of the board of managers of a LLC, would be considered a non-customer for the purpose of SEA Rule 15c3-3. Any other participant would be considered a customer.
(SEC Staff to NYSE) (NYSE Interpretation Memo 02-3, February 2002)
15c3-3(a)(1)/02 Non-Conforming Subordination Agreements Covering Securities
The SEC would consider subordinated lenders of securities who enter into subordination agreements which are not recognized for purposes of providing net capital under SEA Rule 15c3-1, as non-customers who would not be subject to the possession or control requirements of the Rule. Such lenders would have to be informed of the absence of SIPC protection and a no action letter would have to be requested of the SEC on a case by case basis.
(SEC Letter to Arnhold & S. Bleichroeder, Inc., June 28, 1974) (NYSE Interpretation Memo 78-1, May 1978)
Note: Under SIPA, customers are a class of creditor. By subordinating to all customers, the subordinating entity is subordinating to the “any” portion of “any or all creditors” in the exclusion from the term “customer” set forth in the SIPA definition under 15 U.S.C. §78lll(2) and therefore does not have a customer claim in a SIPA proceeding.
Note: Any non-conforming subordination agreements that have been previously approved by the DEA, shall not be subject to the provisions of this revised interpretation.
(SEC Staff to NYSE) (NYSE Interpretation Memo 96-3, April 1996) (NYSE Interpretation Memo 97-6, October 1997)
(SEC Staff to FINRA) (FINRA Regulatory Notice 15-25)
15c3-3(a)(1)/022 Non-Conforming Subordination Agreements for PAB Account Exclusion
See interpretation 15c3-3(a)(16)/01.
(SEC Staff to FINRA) (FINRA Regulatory Notice 15-25)
15c3-3(a)(1)/03 Customer/Non-Customer Foreign Banks – (Rescinded) 15c3-3(a)(1)/031 Customer/Non-Customer Foreign Banks – (Rescinded)15c3-3(a)(1)/032 Foreign Banks - Customer and Non-Customer Classification
Transactions recorded in non-proprietary accounts of a foreign bank would be treated as a customer for purposes of SEA Rule 15c3-3.
Foreign banks may establish a separate “proprietary” account which may be treated as a broker-dealer if the account is clearly labeled as such and a written agreement is obtained in which the foreign bank acknowledges that all transactions in the account are proprietary transactions of the foreign bank acting in a dealer capacity. This account is treated as a non-customer for purposes of the customer reserve formula computation and as a PAB account for purposes of the PAB reserve formula computation, provided that the foreign bank does not fall within the definition of “bank” set forth in Section 3(a)(6) of the ’34 Act, which provides as follows:
“The term “bank” means (A) a banking institution organized under the laws of the United States, (B) a member bank of the Federal Reserve System, (C) any other banking institution, whether incorporated or not, doing business under the laws of any State or of the United States, a substantial portion of the business of which consists of receiving deposits or exercising a fiduciary power similar to those permitted to national banks under Section 11(k) of the Federal Reserve Act, as amended, and which is supervised and examined by State or Federal authority having supervision over banks, and which is not operated for the purpose of evading the provisions of this title, and (D) a receiver, conservator, or other liquidating agent of any institution or firm included in clauses (A), (B) or (C) of this paragraph.”
If the foreign bank falls within the above definition of a bank, it would be treated as a customer for purposes of SEA Rule 15c3-3.
Note: There are at least three forms of foreign banking operations that a broker-dealer may be doing business with (1) representative offices; (2) agencies; and (3) branches. Agencies and branches are subject to certain reporting requirements of the Federal Reserve Board and some states have specific regulations concerning foreign bank entry and operation, including examination and supervision and may be required to be treated as customers. Representative offices generally do not conduct normal banking operations but merely act as liaison offices between the head office and its customers. Generally speaking, there are no state regulations as to examination and supervision of representative offices other than simple registration with the state in which business is being conducted. Representative offices may be eligible for treatment as a non-customer.
(SEC Letter to UBS-DB Corporation, March 5, 1977)
(SEC Staff to NYSE) (NYSE Interpretation Memo 78-2, May 1978) (NYSE Interpretation Memo 01-05, August 2001)
(SEC Staff to FINRA) (FINRA Regulatory Notice 15-25)
15c3-3(a)(1)/033 Foreign Broker-Dealers - Customer and Non-Customer Classification
Transactions recorded in the proprietary account of a foreign broker-dealer would be treated as a non-customer for purposes of the customer reserve formula computation and as a PAB account for purposes of the PAB reserve formula computation.
Transactions recorded in non-proprietary accounts of a foreign broker-dealer would be treated as a customer for purposes of SEA Rule 15c3-3.
(SEC Staff to NYSE) (NYSE Interpretation Memo 01-05, August 2001)
(SEC Staff to FINRA) (FINRA Regulatory Notice 15-25)
15c3-3(a)(1)/04 Customer/Non-Customer - Differing Definition at SEA Rules 8c-1 and 15c3-3
SEA Rules 8c-1 and 15c2-1 concerning Hypothecation of Customers’ Securities define the term “customer”, for purposes of those rules, to be everyone except a general or special partner, a director or officer of the broker-dealer or a participant in a joint, group or syndicate account with the broker-dealer or with any partner, officer or director of the broker-dealer.
Broker-dealers should note the requirements of SEA Rules 8c-1 and 15c2-1; the difference in the definition of “customer” from that shown in SEA Rule 15c3-3, and note in particular the requirement at subparagraph (a)(3) which prohibits securities carried for the account of customers from being hypothecated or subjected to any lien or liens of pledgees for an amount in excess of the aggregate indebtedness (as that term is used in SEA Rules 8c-1 and 15c2-1) of all customers.
Other broker-dealers’ accounts are “customer” accounts under SEA Rules 8c-1 and 15c2-1 and are “non-customer” accounts under SEA Rule 15c3-3.
(SEC Release NYSE Interpretation Memo 2690, November 15, 1940) (NYSE Interpretation Memo 88-1, February 1988)
15c3-3(a)(1)/05 Customer/Non-Customer - Prime Broker
A customer in a prime broker relationship is to be treated as a customer, for SEA Rule 15c3-3 purposes by the prime broker, provided the prime broker does not disaffirm the trade. The executing broker in a prime broker relationship should treat the account as a broker-dealer fail in the name of the prime broker for the benefit of the customer.
However, if the prime broker disaffirms the trade, the executing broker must treat the account as its own customer.
(SEC Letter to SIA, January 24, 1994) (NYSE Interpretation Memo 94-5, May 1994)
15c3-3(a)(1)/06 Parent, Affiliate or Sister Corporation of Broker-Dealer
Security accounts carried by a broker-dealer for a non broker-dealer parent, affiliate or sister corporation are “customers” of the broker-dealer. Credit balances held for these accounts are required to be included in the Reserve Formula and fully-paid excess margin securities are subject to the possession or control requirements of SEA Rule 15c3-3. Debit balances are subject to the restrictions in SEA Rule 15c3-3a(Note E)(4) (Exhibit A).
Fails to deliver and fails to receive with a parent or affiliate who is also a broker-dealer (may be foreign or domestic) are treated according to interpretation SEA Rule 15c3-3a/08 (Exhibit A) (Allocation Chart). These transactions are also subject to paragraph (d) of SEA Rule 15c3-3 and subparagraph (c)(2)(ix) of SEA Rule 15c3-1.
Affiliated entities are not per se a “non-customer” unless the affiliated entity is a broker-dealer or excluded by definition. It is the nature of the account or the transaction as a security account or security transaction which will determine the status of the entity under SEA Rule 15c3-3. Non-securities related transactions should not be recorded in the customer account ledgers.
(SEC Letter to Mesirow Financial Corp., July 13, 1987)
(NYSE Interpretation Memo 88-5) (NYSE Interpretation Memo 94-5, May 1994)
(SEC Staff to NYSE) (NYSE Interpretation Memo 02-7, August 2002)
15c3-3(a)(1)/07 Securities Accounts of Government Sponsored Enterprises
The securities accounts of Government Sponsored Enterprises (such as Freddie Mac and Fannie Mae) should be treated as customer accounts for purposes of SEA Rule 15c3-3.
(SEC Staff to NYSE) (NYSE Interpretation Memo 07-4, April 2007)
15c3-3(a)(2) The term securities carried for the account of a customer (hereinafter also “customer securities”) shall mean:
15c3-3(a)(2)(i) Securities received by or on behalf of a broker or dealer for the account of any customer and securities carried long by a broker or dealer for the account of any customer; and
15c3-3(a)(2)(ii) Securities sold to, or bought for, a customer by a broker or dealer.15c3-3(a)(3) The term fully paid securities means all securities carried for the account of a customer in a cash account as defined in Regulation T (12 CFR 220.1 et seq.), as well as securities carried for the account of a customer in a margin account or any special account under Regulation T that have no loan value for margin purposes, and all margin equity securities in such accounts if they are fully paid: Provided, however, that the term fully paid securities does not apply to any securities purchased in transactions for which the customer has not made full payment.
15c3-3(a)(4) The term margin securities means those securities carried for the account of a customer in a margin account as defined in section 4 of Regulation T (12 CFR 220.4), as well as securities carried in any other account (such accounts hereinafter referred to as “margin accounts”) other than the securities referred to in paragraph (a)(3) of this section.
15c3-3(a)(5) The term excess margin securities shall mean those securities referred to in paragraph (a)(4) of this section carried for the account of a customer having a market value in excess of 140 percent of the total of the debit balances in the customer's account or accounts encompassed by paragraph (a)(4) of this section which the broker or dealer identifies as not constituting margin securities.
15c3-3(a)(5)/01 Amount in Excess of 140% of Customer Debit
This term means those securities carried in a customer’s security accounts having a market value in excess of 140% of the customer’s net debit balance in such accounts. The net debit balance is determined by combining both debit and credit balances in all of a customer’s security accounts exclusive of the credit balance in any bona fide short accounts after marking the short positions contained therein to the market. For these purposes only, when-issued transactions and unsettled security transactions in cash accounts are ignored. Unsettled security transactions are unpaid for security purchases and security sales where securities sold have not been received by the broker-dealer.
(SEC Release 34-9922, January 2, 1973)
15c3-3(a)(6) The term qualified security shall mean a security issued by the United States or a security in respect of which the principal and interest are guaranteed by the United States.
15c3-3(a)(6)/01 GNMA Participation Certificates and Mortgage-Backed Securities
In addition to securities issued by the United States Treasury, Participation Certificates and Mortgage-Backed securities guaranteed by the Government National Mortgage Association (GNMA) have been deemed acceptable for deposit as a “qualified security”.
(SEC Staff to NYSE) (NYSE Interpretation Memo 88-1, February 1988)
15c3-3(a)(6)/011 U. S. Governments Obtained Through Repo
U.S. Government securities obtained through repurchase agreements initiated by other brokers or dealers may be deposited into Reserve Bank Accounts.
(SEC Letter to NYSE, July 16, 1974)
Certificates of Deposit maintained at an affiliated bank of the broker-dealer are treated as non-qualified deposits under SEA Rule 15c3-3(e).
Note: See interpretation 15c3-3(a)(6)/0121 (Certificates of Deposit in Reserve Bank Accounts – Aggregation of Deposits for Concentration Calculation).
(SEC Staff to NYSE) (NYSE Interpretation Memo 83-1, January 1983) (NYSE Interpretation Memo 88-1, February 1988)
(SEC Staff to NYSE) (NYSE Interpretation Memo 03-2, March 2003)
(SEC Staff to FINRA) (FINRA Regulatory Notice 15-25)
15c3-3(a)(6)/0121 Certificates of Deposit in Reserve Bank Accounts – Aggregation of Deposits for Concentration Calculation
Reserve Bank Accounts (Customer and PAB) maintained at the same non-affiliated bank which contain certificates of deposit, money market deposits, time deposits and cash deposits must be aggregated in determining the total amount deposited when computing the concentration calculation pursuant to interpretation 15c3-3(a)(6)/012.
Note: See interpretations 15c3-3(e)(1)/010 (Money Market Deposits in Reserve Bank Accounts – Aggregation of Deposits for Concentration Calculation), 15c3-3(e)(1)/012 (Time Deposits in Reserve Bank Accounts – Aggregation of Deposits for Concentration Calculation) and 15c3-3(e)(5)/01 (Cash Deposits in Reserve Bank Accounts – Aggregation of Deposits for Concentration Calculation).
(SEC Staff to NYSE) (NYSE Interpretation Memo 05-2, January 2005)
(SEC Staff to FINRA) (FINRA Regulatory Notice 15-25)
15c3-3(a)(6)/013 Stripped Securities Deposited
Securities which have been stripped by the U.S. Government and are guaranteed by the U.S. Government may be deposited in the Reserve Bank Account.
There should be a reduction to the value of the securities by 6% if the securities mature longer than one year.
The stripped securities may represent principal and/or interest obligations.
Callable interest obligation stripped U.S. Government securities are not qualified for deposit into Reserve Bank Accounts (see interpretation 15c3-3(a)(6)/04).
(SEC Staff to NYSE) (NYSE Interpretation Memo 92-13, December 1992)
(SEC Staff to NYSE) (NYSE Interpretation Memo 02-7, August 2002)
15c3-3(a)(6)/014 Ginnie Mae REMIC Trust Securities
Ginnie Mae REMIC Trust Securities that are issued under the Ginnie Mae Multiclass Securities Program which are guaranteed by the Government National Mortgage Association (GNMA) as to the timely payment of principal and interest, pursuant to Section 306(g) of the National Housing Act, have been deemed acceptable for deposit as “qualified securities” into a Reserve Bank Account.
(SEC Staff to NYSE) (NYSE Interpretation Memo 03-3, April 2003)
15c3-3(a)(6)/02 Non-Qualified Securities
Securities issued by the government-sponsored enterprises and international institutions shown below are not guaranteed by the United States as to the payment of principal and interest and are not qualified for deposit into Reserve bank accounts.
Government-Sponsored Enterprises - Issues
International Institutions - Issues
(SEC Staff to NYSE) (NYSE Interpretation Memo 88-1, February 1988)
15c3-3(a)(6)/03 Collateralized Mortgage Obligations (CMOs)While they may be secured by mortgage-backed securities that are issued or guaranteed by the United States, they are separate securities neither issued nor guaranteed by the United States.
(SEC Letter to Marcotte Hume & Associates, Inc., June 29, 1988) (NYSE Interpretation Memo 89-7, June 1989)
15c3-3(a)(6)/04 Callable Interest Obligation Stripped Securities
Callable interest obligation stripped U.S. Government securities, even though stripped and guaranteed by the U.S. Government, are not qualified for deposit into Reserve Bank Accounts.
(SEC Staff to NYSE) (NYSE Interpretation Memo 02-7, August 2002)
15c3-3(a)(6)/05 Certificates of Deposit Issued by a Parent or Affiliated Bank
Certificates of deposit issued by a parent or affiliated bank of the broker-dealer are not qualified for deposit into Reserve Bank Accounts.
(SEC Staff to NYSE) (NYSE Interpretation Memo 03-2, March 2003)
15c3-3(a)(7) The term bank means a bank as defined in section 3(a)(6) of the Act and will also mean any building and loan, savings and loan or similar banking institution subject to supervision by a Federal banking authority. With respect to a broker or dealer that maintains its principal place of business in Canada, the term “bank” also means a Canadian bank subject to supervision by a Canadian authority.
15c3-3(a)(8) The term free credit balances means liabilities of a broker or 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, excluding, however, funds in commodity accounts which are segregated in accordance with the Commodity Exchange Act or in a similar manner, or which are funds carried in a proprietary account as that term is defined in regulations under the Commodity Exchange Act. The term “free credit balances” also includes, if subject to immediate cash payment to customers on demand, funds carried in a securities account pursuant to a self-regulatory organization portfolio margining rule approved by the Commission under section 19(b) of the Act (15 U.S.C. 78s(b)) (“SRO portfolio margining rule”), including variation margin or initial margin, marks to market, and proceeds resulting from margin paid or released in connection with closing out, settling or exercising futures contracts and options thereon.
15c3-3(a)(9) The term other credit balances means cash liabilities of a broker or dealer to customers other than free credit balances and funds in commodity accounts which are segregated in accordance with the Commodity Exchange Act or in a similar manner, or funds carried in a proprietary account as that term is defined in regulations under the Commodity Exchange Act. The term “other credit balances” also includes funds that are cash liabilities of a broker or dealer to customers other than free credit balances and are carried in a securities account pursuant to an SRO portfolio margining rule, including variation margin or initial margin, marks to market, and proceeds resulting from margin paid or released in connection with closing out, settling or exercising futures contracts and options thereon.
15c3-3(a)(10) The term funds carried for the account of any customer (hereinafter also “customer funds”) shall mean all free credit and other credit balances carried for the account of the customer.
15c3-3(a)(11) The term principal officer shall mean the president, executive vice president, treasurer, secretary or any other person performing a similar function with the broker or dealer.
15c3-3(a)(12) The term household members and other persons related to principals includes husbands or wives, children, sons-in-law or daughters-in-law and any household relative to whose support a principal contributes directly or indirectly. For purposes of this paragraph (a)(12), a principal shall be deemed to be a director, general partner, or principal officer of the broker or dealer.
15c3-3(a)(13) The term affiliated person includes any person who directly or indirectly controls a broker or dealer or any person who is directly or indirectly controlled by or under common control with the broker or dealer. Ownership of 10% or more of the common stock of the relevant entity will be deemed prima facie control of that entity for purposes of this paragraph.
15c3-3(a)(13)/01 Securities Accounts With Affiliates
Accounts which except for the affiliation would be classified as securities customers must be carried individually, by affiliate in accordance with SEA Rules 15c3-3 and 15c3-3a (Exhibit A) subject to Notes E(1) and E(6).
(SEC Staff to NYSE) (NYSE Interpretation Memo 91-9, July 1991)
15c3-3(a)(14) The term securities account shall mean an account that is maintained in accordance with the requirements of section 15(c)(3) of the Act (15 U.S.C. 78o(c)(3)) and § 240.15c3-3.
15c3-3(a)(15) The term futures account (also referred to as “commodity account”) shall mean an account that is maintained in accordance with the segregation requirements of section 4d of the Commodity Exchange Act (7 U.S.C. 6d) and the rules thereunder.
15c3-3(a)(16) The term PAB account means 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.
Note: Under SIPA, customers are a class of creditor. By subordinating to all customers, the subordinating entity is subordinating to the “any” portion of “any or all creditors” in the exclusion from the term “customer” set forth in the SIPA definition under 15 U.S.C. §78lll(2) and therefore does not have a customer claim in a SIPA proceeding.
(SEC Staff to FINRA) (FINRA Regulatory Notice 15-25)
15c3-3(a)(16)/02 Piggyback Carrying ArrangementsThe term “PAB account” includes the proprietary securities account, as well as the clearing deposit account, of both introducing broker-dealers (piggyback firm and intermediary firm) in a piggyback carrying arrangement.
Note: See interpretation 15c3-1(c)(2)(iv)(E)/027 (Piggyback Carrying Arrangements).
(SEC Staff to FINRA) (FINRA Regulatory Notice 15-25)
15c3-3(a)(17) The term Sweep Program means a service provided by a broker or 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 mutual fund product as described in § 270.2a-7 of this chapter or an account at a bank whose deposits are insured by the Federal Deposit Insurance Corporation.
15c3-3(b) Physical possession or control of securities.15c3-3(b)(1) A broker or dealer shall promptly obtain and shall thereafter maintain the physical possession or control of all fully-paid securities and excess margin securities carried by a broker or dealer for the account of customers.
15c3-3(b)(1)/01 Application Physical Possession
A broker-dealer is required to take timely steps in good faith to establish physical possession or control of customers' fully-paid and excess margin securities.
(SEC Release 34-9922, January 2, 1973)
15c3-3(b)(1)/011 Borrowing Required
When a buy-in order is not executable under subparagraphs (d)(2), (d)(3), (d)(4), (h) and (m) of SEA Rule 15c3-3, the subject security must be borrowed, if available, to comply with this requirement to promptly obtain possession or control.
(SEC Staff to NYSE) (NYSE Interpretation Memo 89-7, June 1989)
(SEC Staff to FINRA) (FINRA Regulatory Notice 15-25)
15c3-3(b)(1)/02 Convertible Securities
The requirement to maintain possession or control of a security is not accomplished by segregation of a security which is convertible into it.
(SEC Staff to NYSE) (NYSE Interpretation Memo 88-1, February 1988)
15c3-3(b)(1)/021 ADRs and Ordinary Shares
ADRs and ordinary shares are not equivalents for possession and control purposes. An excess in either type of security cannot be used to satisfy a deficiency in the other.
(SEC Staff to NYSE) (NYSE Interpretation Memo 92-3, January 1992)
15c3-3(b)(2) A broker or dealer shall not be deemed to be in violation of the provisions of paragraph (b)(1) of this section regarding physical possession or control of customers' securities if, solely as the result of normal business operations, temporary lags occur between the time when a security is required to be in the possession or control of the broker or dealer and the time that it is placed in the broker's or dealer's physical possession or under its control, provided that the broker or dealer takes timely steps in good faith to establish prompt physical possession or control. The burden of proof shall be on the broker or dealer to establish that the failure to obtain physical possession or control of securities carried for the account of customers as required by paragraph (b)(1) of this section is merely temporary and solely the result of normal business operations including same day receipt and redelivery (turnaround), and to establish that it has taken timely steps in good faith to place them in its physical possession or control.
15c3-3(b)(2)/01 Turnarounds – Allowability
Same day receipt and redelivery (turnaround) of a security which is received as a result of the settlement of a transaction is permitted even if such security of such class and issuer are required for possession or control, provided that the turnaround does not create or increase a deficiency. Same day receipt and redelivery does not include securities received as a recall from bank or stock loan, from safekeeping or from any control location.
It should be noted, however, that a broker-dealer must exercise due diligence to promptly obtain possession or control of fully paid and excess margin securities, including the taking of other steps prescribed by the rule for reducing or eliminating any deficiency.
(SEC Release 34-9922, January 2, 1973)
15c3-3(b)(2)/02 Turnarounds - Availability
The same day turnaround rule is available only when the redelivery of the securities received is in satisfaction of a securities transaction that has reached settlement on the day of its receipt, is settling on the day of its receipt, or will reach settlement on the day following its receipt. Further, in order to qualify for the same day turnaround, such securities must be placed beyond the control of the broker-dealer on the same day such securities are received (receipt of a stock power on previously non-negotiable securities does not qualify as a turnaround).
(SEC Letter to Goldman, Sachs & Co., September 21, 1973)
15c3-3(b)(2)/021 Turnarounds - Non-Availability
The same day turnaround rule is not available for return of securities borrowed, securities loans or recalls from bank or stock loans.
(SEC Staff to NYSE) (NYSE Interpretation Memo 88-1, February 1988)
15c3-3(b)(2)/03 Deliveries
A delivery or Removal of Securities is prohibited if it would create or increase a deficiency in the quantity of securities by class and issuer required to be in possession or control. Subparagraph (b)(2) of SEA Rule 15c3-3 does not provide an exception to the above prohibition even though timely steps can be taken to correct a deficiency so created or increased.
(SEC Release 34-9922, January 2, 1973)
(SEC Letter to John Muir & Co., December 15, 1980) (NYSE Interpretation Memo 81-9, February 1981)
15c3-3(b)(2)/031 ACATS Deliveries
A delivery of a customer’s account transferred under the Automated Customer Account Transfer System (ACATS) of NYSE Rule 412(e) is permissible on a fully paid cash account as it should not result in the creation or increase of a deficit if segregation requirements and control locations are reduced by an equal quantity. However, a delivery of an ACATS fail on margin accounts is prohibited if it would create or increase a deficit.
(SEC Staff to NYSE) (NYSE Interpretation Memo 94-5, May 1995)
15c3-3(b)(2)/032 Segregation Systems – “Fluid” or “Liquid” Seg
A segregation system designed to create an excess of securities for which there are delivery needs may eliminate a deficit or create an excess in a given security by the reselection of securities designated for segregation in a customer’s margin account provided the selection does not create or increase a deficit in another security.
(SEC Letter to NYSE, February 28, 1986) (NYSE Interpretation Memo 86-3, March 1986)
15c3-3(b)(2)/033 Segregation Management Allocation SystemA broker-dealer using a segregation allocation management system (“SAMS”) to eliminate a possession or control requirement deficit and/or create an excess in a given security by the re-selection of securities designated for segregation in a customer's margin account must satisfy the following conditions:
Under a SAMS program, a delivery may not be effected when a security is in deficit, even if the deficit would not be increased because a release is effected by a substitution through the program and an equal number of shares are delivered. Same day turnaround privileges only apply to situations where there are actual receipts of securities from the settlement of transactions.
The above audit trail requirements are not required when segregation re-selection is done at the end of the business day and any segregation instructions generated by the SAMS program are included in that day’s stock record and are thereby considered in the excess/deficit quantities calculated from that day's stock record.
(SEC Staff to NYSE) (NYSE Interpretation Memo 95-3, May 1995)
(SEC Staff to FINRA) (FINRA Regulatory Notice 15-25)
Broker-dealers effectuating deliveries through branch offices need not have the branch check an excess/deficit listing prior to making deliveries provided:
(SEC Letter to Blyth, Eastman Dillon, June 5, 1974)
15c3-3(b)(2)/05 Bond Redemption
Bonds required to be held in possession or control may be withdrawn and placed in a non-control location when required for redemption. They may be deposited in such non-control location for a period not exceeding 30 days before action is required to satisfy a possession or control deficiency.
When the redemption has not been completed within 30 days, the market value of the securities shall be included as a credit at Item 6 of the Reserve Formula computation and treated similarly to short stock dividends and distributions until the redemption is accomplished.
(SEC Staff to NYSE) (NYSE Interpretation Memo 90-11, December 1990)
15c3-3(b)(2)/051 Conditional Redemption
Where a bond which has not been called is tendered for early redemption and is held pending the availability of funds or the occurrence of some other condition, it may not be considered to be in possession or control. However, if receipt is confirmed in writing by the paying agent, no action need be taken unless the bond is sold. In this event the bond must be returned or borrowed before delivery is made. When a customer bond has been tendered for early redemption, it should be reflected in the customer account statement.
(SEC Staff to NYSE) (NYSE Interpretation Memo 91-5, June 1991)
15c3-3(b)(2)/06 Stock Splits
A security subject to a stock split can be in the possession of the Depository Trust Company on the due bill off-date. When customers entitled to receive the split shares have been credited, the share amount of the distribution attributable to the shares held in possession or control on the due bill off-date shall be considered a good control location for five business days from due bill off-date.
(SEC Staff to NYSE) (NYSE Interpretation Memo 92-13, December 1992)
15c3-3(b)(2)/061 Stock Dividends
A security subject to a stock dividend can be in the possession of the Depository Trust Company on the record date. When customers entitled to receive the dividend shares have been credited, the share amount of the dividend attributable to the shares held in possession or control on the record date shall be considered a good control location for five business days from payable date.
(SEC Staff to NYSE) (NYSE Interpretation Memo 92-13, December 1992)
15c3-3(b)(3) A broker or dealer shall not be deemed to be in violation of the provisions of paragraph (b)(1) of this section regarding physical possession or control of fully-paid or excess margin securities borrowed from any person, provided that the broker or dealer and the lender, at or before the time of the loan, enter into a written agreement that, at a minimum;
15c3-3(b)(3)(i) Sets forth in a separate schedule or schedules the basis of compensation for any loan and generally the rights and liabilities of the parties as to the borrowed securities;
15c3-3(b)(3)(ii) Provides that the lender will be given a schedule of the securities actually borrowed at the time of the borrowing of the securities;
15c3-3(b)(3)(iii) Specifies that the broker or dealer:15c3-3(b)(3)(iii)(A) Must provide to the lender, upon the execution of the agreement or by the close of the business day of the loan if the loan occurs subsequent to the execution of the agreement, collateral, which fully secures the loan of securities, consisting exclusively of cash or United States Treasury bills and Treasury notes or an irrevocable letter of credit issued by a bank as defined in section 3(a)(6)(A)-(C) of the Act (15 U.S.C. 78c(a)(6)(A)-(C)) or such other collateral as the Commission designates as permissible by order as necessary or appropriate in the public interest and consistent with the protection of investors after giving consideration to the collateral's liquidity, volatility, market depth and location, and the issuer's creditworthiness; and
15c3-3(b)(3)(iii)(B) Must mark the loan to the market not less than daily and, in the event that the market value of all the outstanding securities loaned at the close of trading at the end of the business day exceeds 100 percent of the collateral then held by the lender, the borrowing broker or dealer must provide additional collateral of the type described in paragraph (b)(3)(iii)(A) of this section to the lender by the close of the next business day as necessary to equal, together with the collateral then held by the lender, not less than 100 percent of the market value of the securities loaned; and
15c3-3(b)(3)/01 Other Acceptable Collateral – (Rescinded)(NYSE Interpretation Memo 03-4, May 2003)
15c3-3(b)(3)(iii)(A)/02 Other Acceptable Collateral - Government Securities Borrowing – (Rescinded)(NYSE Interpretation Memo 03-4, May 2003)
15c3-3(b)(3)/03 Amendment to the Written Agreement – (Rescinded)(NYSE Interpretation Memo 03-4, May 2003)
The categories of permissible collateral identified above do not include securities that (i) have no principal component, or (ii) accrue interest at the time of the pledge at a stated rate equal to or greater than 100% per annum (expressed as a percentage of the actual principal amount of the security).
Broker-dealers pledging any of the securities set forth above must, in addition to satisfying the notice requirements already contained in paragraph (b)(3) of Rule 15c3-3, include in the written agreement with the customer a notice that some of the securities being provided by the borrower as collateral under the agreement may not be guaranteed by the United States.
(SEA Release 34-47683, April 16, 2003) (NYSE Interpretation Memo 03-4, May 2003)
15c3-3(b)(3)/05 Amendment to the Written Agreement
A mere modification of the written agreement with the customer will not permit the use of any collateral other than cash or U.S. Treasury bills and notes or an irrevocable letter of credit as stipulated in the text of subparagraph (b)(3)(iii) and the other acceptable collateral permitted under interpretation 15c3-3(b)(3)(iii)/04.
(SEC Staff to NYSE) (NYSE Interpretation Memo 03-4, May 2003)
15c3-3(b)(3)(iv) Contains a prominent notice that the provisions of the SIPA may not protect the lender with respect to the securities loan transaction and that, therefore, the collateral delivered to the lender may constitute the only source of satisfaction of the broker's or dealer's obligation in the event the broker or dealer fails to return the securities.
15c3-3(b)(4)15c3-3(b)(4)(i) Notwithstanding paragraph (k)(2)(i) of this section, a broker or dealer that retains custody of securities that are the subject of a repurchase agreement between the broker or dealer and a counterparty shall:
15c3-3(b)(4)(i)(A) Obtain the repurchase agreement in writing;15c3-3(b)(4)(i)(A)/01 Written Agreement for Hold in Custody Repurchase Transactions
The Department of the Treasury interprets the provisions of 17 CFR 403.1, 403.4(e), and 403.5(d) to require registered broker-dealers transacting a business in government securities to obtain executed written agreements with their counterparties prior to entering into hold-in-custody repurchase transactions.
Note: 17 CFR 403.1 and 403.4(e) are Treasury Regulations that incorporate and/or modify SEA Rules 8c-1, 15c2-1, 15c3-2 and 15c3-3.
(Department of Treasury Letter to NYSE, August 2, 1990) (NYSE Interpretation Memo 90-8, September 1990)
15c3-3(b)(4)(i)(B) Confirm in writing the specific securities that are the subject of a repurchase transaction pursuant to such agreement at the end of the trading day on which the transaction is initiated and at the end of any other day during which other securities are substituted if the substitution results in a change to issuer, maturity date, par amount or coupon rate as specified in the previous confirmation;
15c3-3(b)(4)(i)(C) Advise the counterparty in the repurchase agreement that the Securities Investor Protection Corporation has taken the position that the provisions of the SIPA do not protect the counterparty with respect to the repurchase agreement; and
15c3-3(b)(4)(i)(D) Maintain possession or control of securities that are the subject of the agreement.
15c3-3(b)(4)(ii) For purpose of this paragraph (b)(4), securities are in the broker's or dealer's control only if they are in the control of the broker or dealer within the meaning of § 240.15c3-3 (c)(1), (c)(3), (c)(5) or (c)(6) of this title.
15c3-3(b)(4)(ii)/01 Hold-In Custody Repos - Foreign Securities
The SEC staff has issued a no action letter that permits foreign securities which are the subjects of hold-in custody repurchase agreements to be in control to the same extent it could deem fully-paid customer foreign securities to be in control pursuant to interpretations 15c3-3(c)(4)/01 and 15c3-3(c)(7)/01.
(SEC Letter to The First Boston Corporation, June 17, 1988) (NYSE Interpretation Memo 89-7, June 1989)
15c3-3(b)(4)(ii)/02 Hold-In Custody Repos - FNMA or FHLMC Securities
When a broker-dealer delivers proprietary FNMA or FHLMC securities to Federal National Mortgage Association or Federal Home Loan Mortgage Corporation to be exchanged for newly issued FHLMC OR FNMA REMICS or other derivative securities, in the event the securities are the subject of a repurchase agreement the Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association may be considered as control locations for the securities submitted for not more than five business days.
(SEC Letter to PSA, January 4, 1990) (NYSE Interpretation Memo 90-11, December 1990)
15c3-3(b)(4)(iii) A broker or dealer shall not be in violation of the requirement to maintain possession or control pursuant to paragraph (b)(4)(i)(D) during the trading day if:
15c3-3(b)(4)(iii)(A) In the written repurchase agreement, the counterparty grants the broker or dealer the right to substitute other securities for those subject to the agreement; and
15c3-3(b)(4)(iii)(B) The provision in the written repurchase agreement governing the right, if any, to substitute is immediately preceded by the following disclosure statement, which must be prominently displayed:
Required Disclosure
The [seller] is not permitted to substitute other securities for those subject to this agreement and therefore must keep the [buyer's] securities segregated at all times, unless in this agreement the [buyer] grants the [seller] the right to substitute other securities. If the [buyer] grants the right to substitute, this means that the [buyer's] securities will likely be commingled with the [seller's] own securities during the trading day. The [buyer] is advised that, during any trading day that the [buyer's] securities are commingled with the [seller's] securities, they will be subject to liens granted by the [seller] to its clearing bank and may be used by the [seller] for deliveries on other securities transactions. Whenever the securities are commingled, the [seller's] ability to resegregate substitute securities for the [buyer] will be subject to the [seller's] ability to satisfy the clearing lien or to obtain substitute securities.
15c3-3(b)(4)(iv) A confirmation issued in accordance with paragraph (b)(4)(i)(B) of this section shall specify the issuer, maturity date, coupon rate, par amount and market value of the security and shall further identify a CUSIP or mortgage-backed security pool number, as appropriate, except that a CUSIP or a pool number is not required on the confirmation if it is identified in internal records of the broker or dealer that designate the specific security of the counterparty. For purposes of this paragraph (b)(4)(iv), the market value of any security that is the subject of the repurchase transaction shall be the most recently available bid price plus accrued interest, obtained by any reasonable and consistent methodology.
15c3-3(b)(4)(v) This paragraph (b)(4) shall not apply to a repurchase agreement between the broker or dealer and another broker or dealer (including a government securities broker or dealer), a registered municipal securities dealer, or a general partner or director or principal officer of the broker or dealer or any person to the extent that the person's claim is explicitly subordinated to the claims of creditors of the broker or dealer.
15c3-3(b)(5) A broker or dealer is required to obtain and thereafter maintain the physical possession or control of securities carried for a PAB account, unless the broker or dealer has provided written notice to the account holder that the securities may be used in the ordinary course of its securities business, and has provided an opportunity for the account holder to object.
15c3-3(c) Control of securities. Securities under the control of a broker or dealer shall be deemed to be securities which:
15c3-3(c)(1) Are represented by one or more certificates in the custody or control of a clearing corporation or other subsidiary organization of either national securities exchanges or of a registered national securities association, or of a custodian bank in accordance with a system for the central handling of securities complying with the provisions of §§ 240.8c-1(g) and 240.15c2-1(g) the delivery of which certificates to the broker or dealer does not require the payment of money or value, and if the books or records of the broker or dealer identify the customers entitled to receive specified quantities or units of the securities so held for such customers collectively; or
15c3-3(c)(1)/01 Specific Deposit with OCC
When customers secure their obligations as writers of call options with fully-paid or excess margin underlying securities and such securities are placed on “Specific Deposit” with OCC they are considered to be under the control of the broker-dealer.
(SEC Letter to CBOE, February 11, 1975)
15c3-3(c)(1)/02 Bulk Deposit With OCC to Cover Short Call – (Rescinded)(NYSE Interpretation Memo 04-3, June 2004)
15c3-3(c)(1)/020 Bulk Deposit With OCC to Cover Short Call
A customer’s fully-paid or excess margin securities, other than underlying securities, securing his obligations as a writer of a call option, generally may not be subjected to a lien by OCC and therefore may not be placed on a “bulk deposit” with OCC since this is not a control location for broker-dealers.
However, where a customer writes a call option, the proceeds of his writing transaction are included in the “customer” account at OCC. The broker or dealer will be required to deposit additional margin to secure the customer’s writing obligation, and to this extent, fully-paid or excess margin securities held by the broker or dealer to margin such customer’s writing obligations, may be used to the extent of 140% of the amount derived by adding to the customer’s net debit balance the amount of margin required by OCC from the clearing member or the amount of margin required by the broker or dealer’s Designated Examining Authority. Customers’ securities with a market value in excess of 140% of that amount must be maintained in the possession or control of the broker or dealer.
(SEC Letter to CBOE, February 11, 1975) (SEC Staff to NYSE) (NYSE Interpretation Memo 04-3, June 2004)
15c3-3(c)(1)/021 Bulk Deposit with OCC to Satisfy Margin Requirements
The “bulk deposit” of customer available securities with OCC to satisfy margin requirements is not to be considered a good control location.
(SEC Staff to NYSE) (NYSE Interpretation Memo 83-2, April 1983)
15c3-3(c)(1)/03 Collateral Deposits of Customers’ Securities Securing Letter of Credit
The underlying or an unlike security purchased on margin by the customer can be deposited to secure a letter of credit but only to the extent of 140% of (1) the net debit balance in the customer’s account plus (2) the amount of margin required by OCC. The market value in excess of 140%, of the adjusted debit balance plus the amount of margin required, must be reduced to possession or control.
(SEC Letter to CBOE, March 14, 1975)
(SEC Letter to NYSE, January 28, 1986) (NYSE Interpretation Memo 86-8, August 1986)
15c3-3(c)(1)/041 Acknowledgment Letters
In order for mutual fund custody accounts to be considered as good control locations, as outlined under interpretation 15c3-3(c)(1)/04, the funds must provide acknowledgment letters to demonstrate that there are no liens against the securities.
Broker-dealers should notify their Designated Examining Authority of mutual fund companies which do not respond to a request for acknowledgment letters.
(SEC Staff to NYSE) (NYSE Interpretation Memo 92-13, December 1992)
15c3-3(c)(1)/05 Uncertificated Mutual Fund Shares Collateralizing Advances to Customers
See interpretation 15c3-1(c)(2)(iv)(B)/021.
(SEC Staff to NYSE) (NYSE Interpretation Memo 86-8, August 1986)
15c3-3(c)(1)/06 Long Free Position with NSCC - Stock Borrow ProgramWhen participants of NSCC’s Stock Borrow Program determines that a deficiency exists in the amount required to be in possession or control due to a recalculation of the requirement and the borrowing by NSCC, such borrowed amount may be considered as if in its possession or control, provided:
To clarify the criteria outlined above, the positions in the Long Free Account may be considered to be in the possession or control of the broker-dealer for a period not exceeding 14 calendar days from the initial establishment of the “long free position”.
(SEC Letter to NSCC, August 3, 1981) (NYSE Interpretation Memo 88-6, April 1988)
(SEC Letter to NSCC, May 10, 1984) (NYSE Interpretation Memo 92-13, December 1992)
15c3-3(c)(1)/061 Overstating Long Free Position to Clearing Corporation
Broker-dealer may not overstate securities available for loan with the intent of taking corrective action when a deficit is created or increased. Any intentionally overstated position may not be considered to be a control location in computing excess deficit listings.
(SEC Staff to NYSE) (NYSE Interpretation Memo 91-5, April 1991)
(SEC Letter to NSCC, June 28, 1985) (NYSE Interpretation Memo 88-6, April 1988)
15c3-3(c)(2) Are carried for the account of any customer by a broker or dealer and are carried in an omnibus credit account in the name of such broker or dealer with another broker or dealer in compliance with the requirements of section 7(f) of Regulation T (12 CFR 220.7(f)), such securities being deemed to be under the control of such broker or dealer to the extent that it has instructed such carrying broker or dealer to maintain physical possession or control of them free of any charge, lien, or claim of any kind in favor of such carrying broker or dealer or any persons claiming through such carrying broker or dealer; or
15c3-3(c)(3) Are the subject of bona fide items of transfer; provided that securities shall be deemed not to be the subject of bona fide items of transfer if, within 40 calendar days after they have been transmitted for transfer by the broker or dealer to the issuer or its transfer agent, new certificates conforming to the instructions of the broker or dealer have not been received by the broker or deal, the broker or dealer has not received a written statement by the issuer or its transfer agent acknowledging the transfer instructions and the possession of the securities or the broker or dealer has not obtained a revalidation of a window ticket from a transfer agent with respect to the certificate delivered for transfer; or
15c3-3(c)(3)/01 Securities Depository Position Report of Transfer Items
A broker-dealer’s position report prepared by a securities industry depository company which list securities sent to transfer will serve as a written statement for bona fide items of transfer. The depository company must, however, have received within the 40 calendar days prescribed, a confirmation or a revalidation of the window ticket from the transfer agent.
(SEC Letter to Pacific Securities Depository Trust Company, July 29, 1986)
(NYSE Interpretation Memo 88-6, April 1988)
The receipt for transfer items signed by the Vancouver Stock Exchange for items sent by a securities industry depository company for redelivery to Canadian transfer agents does not satisfy the requirements of SEA Rule 15c3-3(c)(3).
The written statement of acknowledgment must be issued by the issuer or the transfer agent.
The SEC has no agreement with the government of Canada or any of its Provinces regarding transfer agents.
(SEC Letter to Pacific Securities Depository Trust Company, July 29, 1986)
(NYSE Interpretation Memo 88-6, April 1988)
15c3-3(c)(3)/03 Legal Box/ Unsigned Certificates
Securities in physical possession of the broker or dealer which are unsigned awaiting customers’ signed stock powers and/or are pending legal papers needed to effect transfer are considered a good control location even though the securities are not acceptable to facilitate a good delivery. However, when the customer has been paid on the proceeds of the sale, these securities are only considered as good control for a period of ten (10) business days past settlement date.
(SEC Staff to NYSE) (NYSE Interpretation Memo 92-13, December 1992)
15c3-3(c)(4) Are in the custody of a foreign depository, foreign clearing agency or foreign custodian bank which the Commission upon application from a broker or dealer, a registered national securities exchange or a registered national securities association, or upon its own motion shall designate as a satisfactory control location for securities; or
(SEC Release 34-10429, October 12, 1973)
15c3-3(c)(5) Are in the custody or control of a bank as defined in section 3(a)(6) of the Act, the delivery of which securities to the broker or dealer does not require the payment of money or value and the bank having acknowledged in writing that the securities in its custody or control are not subject to any right, charge, security interest, lien or claim of any kind in favor of a bank or any person claiming through the bank; or
15c3-3(c)(5)/01 Savings and Loan Association
Federal Chartered Savings and Loan Association cannot be considered a good control location. It does not meet the definition of a bank under Section 3(a)(6) of the 1934 Act.
(SEC Letter to Bowman & Co., December 13, 1985) (NYSE Interpretation Memo 86-8, August 1986)
15c3-3(c)(5)/011 Certificates of Deposit (Pooled CD’s)Where a broker-dealer is holding divided interests in jumbo certificates of deposit for its customers the certificates will not be considered to be in a good control location unless:
A balanced stock record position should be maintained for each CD describing the certificate and detailing the interests of each customer.
A savings and loan association may be treated as a good control location for this specific interpretation if the pooled certificates of deposit are handled in the manner specified.
(SEC Letter to Hunton & Williams, September 22, 1988) (NYSE Interpretation Memo 92-13, December 1992)
15c3-3(c)(5)/02 Credit Unions
A credit union cannot be considered a good control location. It does not meet the definition of a bank under Section 3(a)(6) of the 1934 Act.
(SEC Letter to Olde & Co., Inc., May 26, 1986) (NYSE Interpretation Memo 88-1, February 1988)
(SEC Staff to NYSE) (NYSE Interpretation Memo 92-13, December 1992)
15c3-3(c)(5)/03 Commingled Securities Under Custody Agreements
When security custody agreements contain the appropriate language of SEA Rule 15c3-3(c)(5) and the securities are in fact not pledged or subject to any lien or claim by or through the bank, firm and customer securities may be commingled in the account.
(SEC Staff to NYSE) (NYSE Interpretation Memo 90-11, December 1990)
15c3-3(c)(6) 15c3-3(c)(6)(i) Are held in or are in transit between offices of the broker or dealer; or15c3-3(c)(6)(i)/01 In-Transit Over Five Days - Not Control
Securities in transit for five business days or less between the broker-dealer and control locations are also deemed to be under control. The books and records of the broker-dealer shall clearly account for such items. An “in-transit” account may be used for this purpose.
(SEC Release 34-9922, January 2, 1973)
15c3-3(c)(6)(ii) are held by a corporate subsidiary if the broker or dealer owns and exercises a majority of the voting rights of all of the voting securities of such subsidiary, assumes or guarantees all of the subsidiary's obligations and liabilities, operates the subsidiary as a branch office of the broker or dealer, and assumes full responsibility for compliance by the subsidiary and all of its associated persons with the provisions of the Federal securities laws as well as for all of the other acts of the subsidiary and such associated persons; or
15c3-3(c)(7) Are held in such other locations as the Commission shall upon application from a broker or dealer find and designate to be adequate for the protection of customer securities.
Additionally, security transactions may not be effected through the account; its purpose being exclusively for the custody of customers’ foreign securities. The carrying broker or dealer must also comply with the conditions set forth in interpretation 15c3-3(c)(4)/01.
(SEC Release 34-10429, October 12, 1973)
15c3-3(c)(7)/02 Accommodation TransfersA broker-dealer who wishes to utilize the facilities of another broker-dealer for accommodation transfers shall obtain a statement from the broker-dealer effecting such transfers which shall provide that accommodation transfers shall be carried by the carrying broker-dealer in an account designated as a “Special Custody Account for Accommodation Transfers for the Exclusive Benefit of Customers of (name of purchasing Broker-Dealer)”. The Account shall contain only the securities of customers of that particular broker-dealer in transfer, or pending transfer. The broker-dealer carrying the Account shall not effect security transactions through such Account, its purpose being exclusively for carrying securities being transferred for the customers of the purchasing broker-dealer. The broker-dealer carrying the Account shall agree that securities carried in such Account shall be free of any charge, lien or claim of any kind in favor of such carrying broker-dealer.
Additionally, the carrying broker-dealer shall undertake to comply fully with all aspects of SEA Rule 15c3-3 with respect to the Account (see interpretation15c3-3(a)(1)/01).
The SEC would consider that such accounts be treated as control locations for purposes of SEA Rule 15c3-3(c)(7) upon an appropriate application to the SEC by the carrying broker-dealer (see interpretations 15c3-3a(Item 4)/02 (Exhibit A) and 15c3-3(c)(7)/03).
(SEC Letter to NASD, July 15, 1974)
15c3-3(c)(7)/021 Application for Approval of Accommodation Transfer AccountApplication should be in form of letter as follows:
Mr. Michael Macchiaroli
Assistant Director
Division of Market Regulation
Securities and Exchange Commission
450 Fifth Street, N. W.
Washington, D. C. 20549
Re: Exchange Act Release No. 11102
Dear Mr. Macchiaroli:
In accordance with the captioned Release, please be advised that (name of accommodating broker i.e. your firm), a registered broker-dealer pursuant to Section 15 of the Securities Exchange Act of 1934, intends to establish an account designated “Special Custody Account for Accommodation Transfers for the Exclusive Benefit of Customers of (Name of accommodated firm)” (“Account”). (Name of accommodated firm) (“Broker”), is a registered broker-dealer pursuant to Section 15 of the Securities Exchange Act of 1934 with principal offices at (Address of accommodated firm).
It is respectfully requested, in accordance with the captioned Release, that the Director of the Division of Market Regulation consider the representations made herein and designate the ACCOUNT that is to be established in accordance with these representations as a control location, as that term is defined in SEA Rule 15c3-3.
If there is any further information needed in connection with this request, kindly contact the undersigned at ____________________.
15c3-3(c)(7)/03 Special Omnibus Account And Accommodation Transfers
A special custody account need not be established for the purpose of obtaining accommodation transfers provided that a special omnibus account pursuant to Section 220.10 of Regulation T is established by the broker-dealer which satisfies the requirements of SEA Rule 15c3-3(c)(2) and the accommodation transfers are effected through such special omnibus account.
(SEC to Midwest Stock Exchange, Inc., May 4, 1977) (NYSE Interpretation Memo 78-1, May 1978)
15c3-3(c)(7)/04 “Certificateless” Money Market FundsOrdinarily the SEC will only approve locations, not specifically described in the rule as good control locations, on a case by case basis upon application. However, in the case of money market funds where the fund or its agent carries the security in an account for a broker or dealer, the SEC has stated,
“The Division has decided not to approve each application on a case by case basis. Instead, the Division will raise no question nor recommend any enforcement action where brokers and dealers treat money market funds as control locations for purposes of Rule 15c3-3 under the guidelines described herein.”
“First the fund must be currently registered with the Commission pursuant to the Investment Company Act of 1940. Further, the brokers or dealers must carry such investments “long” in such customer’s account. They must reflect separately for the securities of each fund all positions in their securities records or ledgers maintained pursuant to Rule 17a-3 under the Securities Exchange Act.[*] In addition, the broker or dealer must not be aware of any substantial problems of an operational nature which the fund may be experiencing and which may endanger the securities of the customer.”
“For the purposes of this letter, “Money market” funds mean open-end investment companies which invest primarily in short-term debt instruments. Although the portfolio composition of “money market” funds may be variable both in terms of the types of securities purchased and their maturities, the portfolios of such funds typically will include U. S. Government and government agency issues, certificates of deposit, banker's acceptances, and commercial paper.”
(SEC Letter to NYSE, December 13, 1979)
(SEC Letter to Wayne Hummer & Co., March 6, 1986) (NYSE Interpretation Memo 86-8, August 1986)
(SEC Letter to Wilmer, Cutler & Pickering, July 30, 1997) (NYSE Interpretation Memo 98-5, May 1998)
When the omnibus account ceases to be a control location, the receiving broker-dealer must include the market value of all customer securities not yet delivered to it in its reserve formula computation as a “failed to receive” credit item, whether or not it has any money credits related to the particular securities and must initiate action to buy-in the securities not yet delivered.
(SEC Letter to NYSE, December 5, 1988) (NYSE Interpretation Memo 89-7, June 1989)
Case by case approval for each location will not be required for book entry commercial paper where all the above circumstances are present.
(SEC Letter to NYSE, September 5, 1989) (NYSE Interpretation Memo 89-11, October 1989)
(SEC Staff to NYSE) (NYSE Interpretation Memo 98-5, May 1998)
15c3-3(d) Requirement to reduce securities to possession or control. Not later than the next business day, a broker or dealer, as of the close of the preceding business day, shall determine from its books or records the quantity of fully paid securities and excess margin securities in its possession or control and the quantity of fully paid securities and excess margin securities not in its possession or control. In making this daily determination inactive margin accounts (accounts having no activity by reason of purchase or sale of securities, receipt or delivery of cash or securities or similar type events) may be computed not less than once weekly. If such books or records indicate, as of such close of the business day, that such broker or dealer has not obtained physical possession or control of all fully paid and excess margin securities as required by this section and there are securities of the same issue and class in any of the following noncontrol locations:
15c3-3(d)(1) Securities subject to a lien securing moneys borrowed by the broker or dealer or securities loaned to another broker or dealer or a clearing corporation, then the broker or dealer shall, not later than the business day following the day on which such determination is made, issue instructions for the release of such securities from the lien or return of such loaned securities and shall obtain physical possession or control of such securities within two business days following the date of issuance of the instructions in the case of securities subject to lien securing borrowed moneys and within five business days following the date of issuance of instructions in the case of securities loaned; or
A deficiency in a given security required for possession or control may be eliminated by revising the selection of securities in margin accounts (market value not in excess of 140% of the total of the debit balance in the customer’s account or accounts) representing collateral for customers' indebtedness. In every instance where a determination as to which securities within the permissible limits constitute margin securities and which securities constitute excess margin securities of customers has been made or revised, it should be clearly reflected in the records of the broker-dealer.
(SEC Release 34-9922, January 2, 1973; Amended August 1994)
(SEC Staff to NYSE) (NYSE Interpretation Memo 95-3, May 1995)
(SEC Staff to FINRA) (FINRA Regulatory Notice 18-03)
15c3-3(d)(1)/011 Early Release of Customers’ Foreign Issued Securities From Possession or Control
Customers’ foreign issued securities which have been sold for foreign settlement may be released on the day following execution of the sale, solely to facilitate its delivery. The security may not be used for any other purpose prior to settlement date.
(SEC Staff to NYSE) (NYSE Interpretation Memo 92-13, December 1992)
15c3-3(d)(1)/02 Cashiering SectionThe deficiency or excess of securities required for possession or control must be determined on a daily basis as of the close of business on the preceding day. A separate record or listing must include the status of those securities which have either an excess or a deficit. For securities which are neither in excess or deficit, books and records must be available to verify that status.
For securities in deficit, action must be taken (if required by the rule) no later than the business day following the day on which the deficiency determination is made.
Securities needed for possession or control may be borrowed from another broker-dealer or from others rather than recall a security loaned, withdraw bank loan collateral or buy-in a dividend receivable. Securities may not be borrowed in lieu of other buy-in requirements in the rule such as fails to receive in excess of 30 days, short security differences and short in customer accounts in excess of 10 business days (paragraph (m)). If instructions shall have been issued for the recall of a security loaned or for the withdrawal of collateral securities in a bank loan, deliveries of that security may be made to the extent that completion of such recall would create an excess, provided the security recalled is returned within two business days following the date of issuance of the instructions in the case of collateral securities in a bank loan within five business days following the date of issuance of instructions in the case of securities loaned.
Note that the borrowing of securities for the purpose of their hypothecation in bank loan is not stated as a permissible activity at 220.16 of Regulation T of The Board of Governors of the Federal Reserve System.
(SEC Release NYSE Interpretation Memo 34-9922, January 2, 1973)
15c3-3(d)(1)/03 Requirements For Less Than Full Unit of TradingWhere less than a full unit of trading is required to be in possession or control, no action pursuant to paragraph (d) of the rule will be required and delivery of trading units will not be precluded if a deficiency of less than a trading unit will result.
However, while broker-dealers may pledge margin securities in units of trading without reference to the requirement to reduce to possession or control quantities of less than a trading unit, where such excess is material or substantial a broker-dealer should take appropriate corrective action.
Note: SEC Release No. 9922 permits a broker-dealer to revise his selection of securities in margin accounts representing collateral for customers' margin indebtedness.
(SEC letter to NASD, July 16, 1974)
15c3-3(d)(1)/04 Specific Identification SystemA broker-dealer that uses a specific identification system to satisfy possession and control requirements, need not take action to obtain securities that are in non-control locations other than the location in which a customer's fully-paid or excess margin securities are specifically located.
Example: Firm owns securities and pledges them for a bank loan. The next day a customer buys securities, pays for them and the selling broker fails to deliver.The broker need not remove the securities from bank loan if he is on a specific identification system, since the customer's securities are in fail to receive (for less than 30 days).
(SEC letter to Sade & Co., March 29, 1973)
15c3-3(d)(1)/041 Allocation SystemWith reference to the example cited in interpretation 15c3-3(d)(1)/04 above or similar situations, if the broker-dealer is using an allocation system the securities must be recalled from bank loan or stock loan as required under SEA Rule 15c3-3(d)(1). Only the locations described under SEA Rule 15c3-3(c) are good possession or control locations.
The fact that time is allowed before action must be taken when securities are located in failed to receive or elsewhere does not make it a good control location.
(SEC Staff to NYSE)
15c3-3(d)(1)/05 Omnibus Accounts
Broker-dealers carrying a special omnibus account under 220.10 of Reg. T must reduce securities to possession or control in accordance with the instructions of the introducing broker who makes daily determinations of fully paid and excess margin securities. A special omnibus account is also considered a customer account for purposes of SEA Rule 15c3-3 and the required 140% computation must also be complied with.
(SEC Release 34-9856, November 10, 1972)
15c3-3(d)(1)/06 Customer Long vs. Customer, Non-Customer or Proprietary ShortWhen customers’ fully paid or excess margin securities (other than those indicated under interpretation 15c3-3(d)(1)/07) allocate to a customer, non-customer or proprietary short position, the short market value is includible as a credit in the customer reserve formula computation.
In any case, a deficit may not be created or increased by delivery on a short sale and prompt steps must be taken to bring the security into possession or control.
Note: See SEA Rule 15c3-3(d)(4) for possession or control requirements.
(SEC Staff to NYSE) ( NYSE Interpretation Memo 78-1, May 1978) (NYSE Interpretation Memo 88-10, June 1988)
(SEC Staff to FINRA) (FINRA Regulatory Notice 15-25)
In addition, a purchasing broker-dealer cannot designate another broker-dealer who issues a short sale confirmation as a control location unless such seller is committed in a custody agreement to borrow and set aside the securities for the benefit of the purchasing broker-dealer’s customers.
(SEC Staff to NYSE) (NYSE Interpretation Memo 88-4, March 1988) (NYSE Interpretation Memo 88-10, June 1988)
15c3-3(d)(1)/08 Retention of Excess/Deficit Listing
Excess/deficit listings are to be preserved for a period of three years with the first two years in an easily accessible place.
(SEC Staff to NYSE) (NYSE Interpretation Memo 78-1, May 1978)
Thus, a separate record or listing as set forth in Release No. 9922 may not be necessary for some broker-dealers who can comply with the rule’s provisions if the records outlined above or those maintained by him readily enable a broker or dealer (a) to issue instructions to acquire physical possession or control of fully paid or excess margin securities within the time frames set forth in SEA Rule 15c3-3 or (b) to determine the amount of any excess or deficiency of fully paid and excess margin securities either in or required to be in physical possession or control and the location of any such securities in deficiency, daily as of the close of business on the preceding day. Where a separate listing must be maintained, such listing must include any deficiency or excess of fully paid for and excess margin securities as determined from records, which should meet criteria (1) through (5) above.
(SEC to Troster, Singer & Co., January 21, 1975) (NYSE Interpretation Memo 78-1, May 1978)
15c3-3(d)(1)/091 Agreement to Pledge Loans
Effective February 28, 1986 securities collateralizing bank loans under agreements to pledge must be reflected in the daily securities records, bank loan subsidiary ledger and the excess/deficit listings.
(SEC staff to NYSE) (NYSE Interpretation Memo 85-12, December 1985)
15c3-3(d)(1)/10 Conversion of Securities Loan Recall To Fail To ReceiveSecurities needed for possession or control which are recalled from securities loaned cannot be converted to failed to receive if not returned within five business days and the required buy-in action must be initiated.
Broker-dealers may want to set up such securities loaned buy-ins in a separate account in order to separate such items from securities loaned locations for which no action is required.
Note: Broker-dealers may, however, borrow securities on day 6 in order to satisfy a deficit condition where securities loaned recall has not been returned within the time frames prescribed by the rule.
(SEC Staff to NYSE) (NYSE Interpretation Memo 78-1, May 1978)
(SEC Letter to NYSE, February 14, 1994) (NYSE Interpretation Memo 94-5, May 1994)
(SEC Letter to NYSE, December 21, 1991, NYSE Interpretation Memo 92-2)
(NYSE Interpretation Memo 94-5, May 1994)
15c3-3(d)(1)/11 Dividend Longs, Suspense Longs and Long Differences
Unclaimed stock dividends payable, suspense longs and long differences are considered customer positions and are subject to possession or control requirements.
(SEC Staff to NYSE) (NYSE Interpretation Memo 78-1, May 1978)
15c3-3(d)(1)/12 Pre-Authorized Delivery Service (PDQ)
Recording movements of the location of securities into a pending delivery box non-control location based on excess securities available for delivery a day prior to actual PDQ deliveries is not a violation of possession or control requirements, since such securities are not considered to be in a control location.
(SEC Staff to NYSE) (NYSE Interpretation Memo 78-1, May 1978)
15c3-3(d)(1)/13 Pre-Authorized Delivery - Other
When securities are held in excess of possession or control requirements, they may be moved to a pending delivery box non-control location a day prior to pledge as collateral to bank loan or to stock loan.
(SEC Staff NYSE) (NYSE Interpretation Memo 90-11, December 1990)
15c3-3(d)(2) Securities included on the broker's or dealer's books or records as failed to receive more than 30 calendar days, then the broker or dealer shall, not later than the business day following the day on which such determination is made, take prompt steps to obtain physical possession or control of securities so failed to receive through a buy-in procedure or otherwise; or
All other no-action letters relating to this subject should be considered withdrawn and may no longer be relied upon.
(SEC Letter to SIA, June 16, 1988) (NYSE Interpretation Memo 88-20, November 1988)
15c3-3(d)(2)/02 Fail to Receive Buy-In
When buy-in procedures are required to obtain securities located in fail to receive, such procedures must be initiated not later than the business day following the 30th calendar day.
(SEC Letter to J. B. Hanauer, February 22, 1988) (NYSE Interpretation Memo 89-7, June 1989)
15c3-3(d)(2)/021 Fail to Receive Buy-In AccomplishmentWhen the buy-in of aged fail to receive is necessary to obtain securities require to be held in possession or control, the security must be purchased if the order is executable.
In the event the buy-in order is not executable, other steps must be promptly taken to obtain required possession or control (i.e., borrowing).
(SEC Staff of NYSE) (NYSE Interpretation Memo 89-7, June 1989)
15c3-3(d)(2)/0210 Use of Securities Subject to a Buy-in Procedure
The initiation of a buy-in procedure does not give the broker-dealer the right to use securities needed for possession or control that come into its possession during the period of time between the issuance of the buy-in and its actual execution and/or receipt of the securities that were the subject of the buy-in. Securities that are received physically by the firm during this interim period should be allocated to eliminate the deficiency that triggered the buy-in procedure. Only when that deficiency has been corrected can the firm resume use of securities for other purposes.
(SEC Staff of DMR to NASD, October 1988)
15c3-3(d)(2)/022 CNS System Fails to Receive - Not Aged
Fails to receive from a registered clearing agency operating under a continuous net settlement system which is marked to market daily need not be aged. Thus, under ordinary circumstances such fails to receive need not be bought in under this subparagraph unless delivery is request by the customer, or a buy in is required through other rules or circumstances.
(SEC Staff to NYSE) (NYSE Interpretation Memo 90-11, December 1990)
15c3-3(d)(2)/03 Failed to Receive Resulting From NYSE Rule 412(e) (ACATS) Customer Securities Accounts Transfers
When customer’s accounts transferred under the Automated Customer Account Transfer System (ACATS) of NYSE Rule 412(e) contain fully paid securities, the receiving broker-dealer must designate the securities as required to be held in possession or control even though the security may be failing to receive from the delivering broker-dealer. However, where the customer’s long position is identified as related to a NYSE Rule 412(e) (ACATS) fail to receive, the following treatment may apply:
Amounts to be received upon delivery of an ACATS failed to deliver item may be included as a debit under Item 12 of the reserve formula computation for 10 business days provided it is carried in compliance with NYSE Rule 412 and the security position does not allocate to a control location.
(SEC Staff to NYSE) (NYSE Interpretation Memo 90-1, February 1990)
15c3-3(d)(2)/04 Buy-In of Mortgage Backed Securities
Buy-ins are required for U.S. Government Mortgage Backed Securities that are in fail to receive status for more than 60 calendar days pursuant to the requirements of the Treasury Rule.
(U.S. Treasury Department Release, February 28, 1994)
(SEC Staff to NYSE) (NYSE Interpretation Memo 95-3, May 1995)
15c3-3(d)(2)/05 Extensions of Time
See paragraph (n) of this section for information regarding time periods and processing of extensions of time.
(SEC Staff to NYSE)
15c3-3(d)(2)/06 Recaps by NSCC
In accordance with an SEC no-action letter dated December 22, 1987 a member organization participating in NSCC’s RECAP service may treat the RECAP’s settlement date as the date of the fail.
(SEC Staff to NYSE)
15c3-3(d)(3) Securities receivable by the broker or dealer as a security dividend receivable, stock split or similar distribution for more than 45 calendar days, then the broker or dealer shall, not later than the business day following the day on which such determination is made, take prompt steps to obtain physical possession or control of securities so receivable through a buy-in procedure or otherwise; or
15c3-3(d)(3)/01 Extensions of Time
See paragraph (n) of this section for information regarding time periods and processing of extensions of time.
(SEC Staff to NYSE)
15c3-3(d)(4) Securities included on the broker's or dealer's books or records that allocate to a short position of the broker or dealer or a short position for another person, excluding positions covered by paragraph (m) of this section, for more than 30 calendar days, then the broker or dealer must, not later than the business day following the day on which the determination is made, take prompt steps to obtain physical possession or control of such securities. For the purposes of this paragraph (d)(4), the 30 day time period will not begin to run with respect to a syndicate short position established in connection with an offering of securities until the completion of the underwriter's participation in the distribution as determined pursuant to § 242.100(b) of Regulation M of this chapter (17 CFR 242.100 through 242.105); or
15c3-3(d)(4)/01 Extensions of Time
See FINRA Regulatory Notice 14-13 (Regulatory Extension (REX) System Update) for information regarding time periods and processing of extensions of time.
(SEC Staff to FINRA) (FINRA Regulatory Notice 15-25)
15c3-3(d)(5) A broker or dealer which is subject to the requirements of § 240.15c3-3 with respect to physical possession or control of fully paid and excess margin securities shall prepare and maintain a current and detailed description of the procedures which it utilizes to comply with the possession or control requirements set forth in this section. The records required herein shall be made available upon request to the Commission and to the designated examining authority for such broker or dealer.
15c3-3(e) Special reserve bank accounts for the exclusive benefit of customers and PAB accounts.15c3-3(e)(1) Every broker or dealer must maintain with a bank or banks at all times when deposits are required or hereinafter specified a “Special Reserve Bank Account for the Exclusive Benefit of Customers” (hereinafter referred to as the Customer Reserve Bank Account) and a “Special Reserve Bank Account for Brokers and Dealers” (hereinafter referred to as the PAB Reserve Bank Account), each of which will be separate from the other and from any other bank account of the broker or dealer. Such broker or dealer must at all times maintain in the Customer Reserve Bank Account and the PAB Reserve Bank Account, through deposits made therein, cash and/or qualified securities in amounts computed in accordance with the formula attached as Exhibit A (17 CFR 240.15c3-3a), as applied to customer and PAB accounts respectively.
MMDA deposits maintained at an affiliated bank of the broker-dealer are treated as non-qualified deposits under SEA Rule 15c3-3(e).
Note: See interpretation 15c3-3(e)(1)/010 (Money Market Deposits in Reserve Bank Accounts – Aggregation of Deposits for Concentration Calculation).
(SEC Staff to NYSE) (NYSE Interpretation Memo 88-1, February 1988)
(SEC Staff to FINRA) (FINRA Regulatory Notice 15-25)
15c3-3(e)(1)/010 Money Market Deposits in Reserve Bank Accounts – Aggregation of Deposits for Concentration Calculation
Reserve Bank Accounts (Customer and PAB) maintained at the same non-affiliated bank which contain money market deposits, certificates of deposit, time deposits and cash deposits must be aggregated in determining the total amount deposited when computing the concentration calculation pursuant to interpretation 15c3-3(e)(1)/01.
Note: See interpretations 15c3-3(a)(6)/0121 (Certificates of Deposit in Reserve Bank Accounts – Aggregation of Deposits for Concentration Calculation), 15c3-3(e)(1)/012 (Time Deposits in Reserve Bank Accounts – Aggregation of Deposits for Concentration Calculation) and 15c3-3(e)(5)/01 (Cash Deposits in Reserve Bank Accounts – Aggregation of Deposits for Concentration Calculation).
(SEC Staff to NYSE) (NYSE Interpretation Memo 05-2, January 2005)
(SEC Staff to FINRA) (FINRA Regulatory Notice 15-25)
Time Deposits maintained at an affiliated bank of the broker-dealer are treated as non-qualified deposits under SEA Rule 15c3-3(e).
Note: See interpretation 15c3-3(e)(1)/012 (Time Deposits in Reserve Bank Accounts – Aggregation of Deposits for Concentration Calculation).
(SEC Staff to NYSE) (NYSE Interpretation Memo 96-3, April 1996) (NYSE Interpretation Memo 02-7, August 2002) (SEC Staff to NYSE) (NYSE Interpretation Memo 07-4, April 2007)
(SEC Staff to FINRA) (FINRA Regulatory Notice 15-25)
15c3-3(e)(1)/012 Time Deposits in Reserve Bank Accounts – Aggregation of Deposits for Concentration Calculation
Reserve Bank Accounts (Customer and PAB) maintained at the same non-affiliated bank which contain time deposits, certificates of deposit, money market deposits and cash deposits must be aggregated in determining the total amount deposited when computing the concentration calculation pursuant to interpretation 15c3-3(e)(1)/011.
Note: See interpretations 15c3-3(a)(6)/0121 (Certificates of Deposit in Reserve Bank Accounts – Aggregation of Deposits for Concentration Calculation), 15c3-3(e)(1)/010 (Money Market Deposits in Reserve Bank Accounts – Aggregation of Deposits for Concentration Calculation) and 15c3-3(e)(5)/01 (Cash Deposits in Reserve Bank Accounts – Aggregation of Deposits for Concentration Calculation).
(SEC Staff to NYSE) (NYSE Interpretation Memo 05-2, January 2005)
(SEC Staff to FINRA) (FINRA Regulatory Notice 15-25)
15c3-3(e)(1)/02 IRA and ERISA Contribution Account
A separate Reserve Bank Account may be establish to be used exclusively to deposit IRA and ERISA contributions pending purchase of mutual fund shares or other qualified investment for IRA and other qualifying retirement plans.
(SEC Letter to PaineWebber Incorporated, April 17, 1986) (NYSE Interpretation Memo 88-1, February 1988)
15c3-3(e)(1)/03 Offshore Deposits
Offshore deposits (Eurodollars, etc.) whether representing demand deposits, time deposits or certificates of deposit are not good for special reserve bank account deposits under SEA Rule 15c3-3(e).
(SEC Staff to NYSE) (NYSE Interpretation Memo 86-8, August 1986)
15c3-3(e)(1)/04 Borrowed Treasury SecuritiesA “qualified security” as defined by SEA Rule 15c3-3(a)(6), which has been borrowed may be deposited into a Reserve Bank Account provided the broker-dealer is a Primary Dealer. Borrowed qualified securities must be secured by cash or other qualified securities to be acceptable for 15c3-3 deposits.
The value allowed for the deposit is the lesser of the contract or market value of the securities borrowed. In lieu of valuing the securities at the lesser of contract or market broker-dealers can take a 2% reduction to the market value in valuing these securities for reserve formula deposit purposes.
It is acceptable for a broker-dealer that is not a Primary Dealer to borrow qualified securities as defined by SEA Rule 15c3-3(a)(6) for deposit into a Reserve Bank Account.
(SEC Staff to NYSE) (NYSE Interpretation Memo 92-3, January 1992)
(SEC Staff to NYSE) (NYSE Interpretation Memo 03-2, March 2003)
The SEC has prescribed the following conditions for holding “Qualified Securities” on deposit in a Rule 15c3-3 Special Reserve Account for the Exclusive Benefit of Customers:
Physical Certificates: The bank actually holding the certificates must acknowledge to the broker-dealer in writing that the certificates are identified on the bank’s books as being held free of lien in a special account for the exclusive benefit of customers of the broker-dealer.
Uncertificated Securities: The bank having the direct access to the Federal Reserve Bank book entry system must acknowledge in writing to the broker-dealer that the securities are held free of any lien in a special reserve account for the exclusive benefit of customers of the broker-dealer.
Reverse Repurchase Agreement Securities: Possession or control must be established as in the appropriate paragraph above.
Identification: The securities deposited must be clearly identified as to class or series of the issuer, interest rate and maturity.
Clearance Procedure: Where a purchase or sale involves funds or securities already held in the special reserve account, the values removed must be replaced with equal or greater value. Reductions to the special reserve account may only be made in conformity and compliance with SEA Rule 15c3-3(g) and supported by a reserve formula computation as required. The payment for the purchase and receipt of the securities or delivery of securities and deposit of proceeds in the special reserve account must take place simultaneously.
Correspondent Banks: Where purchase of the securities is made through a correspondent bank, the broker-dealer must be notified by the bank holding the qualified securities or having the direct contact with the Federal Reserve book entry system that:
(NYSE Interpretation Memo 89-13, November 27, 1989)
(SEC Staff to NYSE) (NYSE Interpretation Memo 90-1, February 1990)
If the market value of securities deposited falls below the reserve requirement an additional deposit should be made to maintain an amount not less than the amount computed in the prior reserve computation.
Qualified securities should be valued at the lesser of contract value or market value when the securities are obtained through reverse repurchase agreements or securities borrowed.
In lieu of valuing the securities at the lesser of contract value or market value, broker-dealers can take a 2% reduction to the market value in valuing these securities for reserve formula deposit purposes.
(SEC Staff to NYSE) (NYSE Interpretation Memo 92-3, January 1992)
15c3-3(e)(1)/06 Reserve Deposit Made From Overdrawn AccountChecks deposited or funds wired to a Reserve Bank Account that create overdrafts or increase existing overdrafts in other bank accounts do not qualify as bona fide deposits. Consequently, a broker-dealer cannot meet its deposit requirements by utilizing such overdrawn funds.
In order for a deposit to be considered bona-fide, the bank account from which the funds were wired must have had funds on deposit per the books of the broker-dealer in excess of the wired amount at the time the wire was sent.
A deposit made from an overdrawn account can only be considered an unsecured loan if the bank acknowledges in writing that the overdrawn amount is an unsecured loan and the bank agrees to only look toward the overdrawn account for payment (no cross liens).
(SEC Staff to NYSE and NASD) (NYSE Interpretation Memo 90-10, December 1990)
(SEC Staff to NYSE) (NYSE Interpretation Memo 91-5, June 1991)
(SEC Staff to NYSE) (NYSE Interpretation Memo 92-3, January 1992)
Cash deposited into a Reserve Bank Account must have originated directly from wire transfers of fed funds or certified checks and be in the account by 10 A.M.
Clearing house checks are not acceptable for direct deposit into the reserve bank account unless the checks are received directly from customers.
Drafts, notes, or ACH deposits are not acceptable for direct deposit into the Reserve Bank Account.
(SEC Staff to NYSE) (NYSE Interpretation Memo 99-5, May 1999)
(SEC Staff to NYSE) (NYSE Interpretation Memo 03-2, March 2003)
15c3-3(e)(1)/062 Timeliness of Reserve Deposit
A broker-dealer may utilize a reserve bank account located outside of its normal home office (main headquarter) time zone. Funds and/or securities must be deposited into that account no later than one hour after the opening of its home office (but never later than 10 A.M. local time) provided prior written justification has been given to the DEA regarding using a reserve bank account located outside of the broker-dealer’s home office time zone.
(SEC Staff to NYSE) (NYSE Interpretation Memo 99-5, May 1999)
15c3-3(e)(1)/07 Foreign Currency DepositsA firm may deposit foreign currency in a Special Reserve Bank Account, provided there is an offsetting customer credit balance in the same foreign currency in the Reserve Formula.
In addition, the bank where the deposit is held must meet the definition of a “bank” pursuant to SEA Rule 15c3-3(a)(7), and the account must be established and maintained pursuant to SEA Rule 15c3-3(f).
(SEC Staff to NYSE) (NYSE Interpretation Memo 96-3, April 1996)
(SEC Staff to NYSE) (NYSE Interpretation Memo 97-6, October 1997)
15c3-3(e)(2) With respect to each computation required pursuant to paragraph (e)(1) of this section, a broker or dealer must not accept or use any of the amounts under items comprising Total Credits under the formula referred to in paragraph (e)(1) of this section except for the specified purposes indicated under items comprising Total Debits under the formula, and, to the extent Total Credits exceed Total Debits, at least the net amount thereof must be maintained in the Customer Reserve Bank Account and PAB Reserve Bank Account pursuant to paragraph (e)(1) of this section.
15c3-3(e)(2)/01 Substitution of Firm Bank Loans for Customer Bank LoansThe SEC has censured a broker-dealer for violating SEA Rule 15c3-3(e)(2) by substituting proprietary bank loans for customer bank loans prior to making the formula computation and reinstating the customer loans shortly thereafter.
The SEC advised that the intent and objective of SEA Rule 15c3-3, as indicated in SEC Release No. 34-9775 dated September 14, 1972, is.…”to perfect the objective of the elimination of the use by broker-dealers of customer funds and securities to finance firm overhead and such firm activities as trading and underwriting through the separation of customer related activities from other broker-dealer operations”.
The SEC staff advised that broker-dealers that would otherwise have had a higher reserve deposit requirement should be aware that substitution of proprietary or non-customer bank loans for customer bank loans only for the week-end or on the day of the formula computation may be regarded as an intentional circumvention of the rule if the customer loans are reinstated shortly thereafter.
(NYSE Interpretation Memo 89-10, August 23, 1989)
(SEC Staff to NYSE) (NYSE Interpretation Memo 89-11, October 1989)
The staff of the SEC further stated that such techniques may be in violation of the requirements of the rule in that customer derived funds are used during the period between computations “. in areas of the firm’s business such as underwriting, trading and overhead” contrary to the purpose of the rule.
(NYSE Interpretation Memo 89-10, August 23, 1989)
(SEC Staff to NYSE) (NYSE Interpretation Memo 89-11, October 1989)
15c3-3(e)(3)(i) 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; provided, however, a broker or dealer which has aggregate indebtedness not exceeding 800 percent of net capital (as defined in § 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 percent of the amount so computed no later than one hour after the opening of banking business on the second following business day.
15c3-3(e)(3)(ii) If a broker or dealer, computing on a monthly basis, has, at the time of any required computation, aggregate indebtedness in excess of 800 percent of net capital, such broker or dealer must thereafter compute weekly as aforesaid until four successive weekly Customer Reserve Bank Account computations are made, none of which were made at a time when its aggregate indebtedness exceeded 800 percent of its net capital.
15c3-3(e)(3)(iii) A broker or dealer that does not carry the accounts of a “customer” as defined by this section or conduct a proprietary trading business may make the computation to be performed with respect to PAB accounts under paragraph (e)(1) of this section monthly rather than weekly. If a broker or dealer performing the computation with respect to PAB accounts under paragraph (e)(1) of this section on a monthly basis is, at the time of any required computation, required to deposit additional cash or qualified securities in the PAB Reserve Bank Account, the broker or dealer must thereafter perform the computation required with respect to PAB accounts under paragraph (e)(1) of this section weekly until four successive weekly computations are made, none of which is made at a time when the broker or dealer was required to deposit additional cash or qualified securities in the PAB Reserve Bank Account.
15c3-3(e)(3)(iv) Computations in addition to the computations required in this paragraph (e)(3), 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.
15c3-3(e)(3)(v) 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 § 240.17a-4.
15c3-3(e)(3)/01 Weekly ComputationsIf the normal month-ending day is other than that as of which a weekly computation would be made, only one computation will be required during that week, as of the month-ending day. In any case, a complete computation must be made as of the month end date.
See interpretation 15c3-3a/01 (Exhibit A) for special rules covering the weekly determination of various Reserve Formula items.
If the normal month-end closing date is other than the last business day of the calendar month, the next weekly computation is required as of the close of the last business day of the following week. No computation is required as of the last business day of the calendar month.
(SEC Release 34-9922, January 2, 1973) (NYSE Interpretation Memo 83-2, April 1983)
(SEC Release 34-9922, January 2, 1973) (NYSE Interpretation Memo 89-7, June 1989)
15c3-3(e)(3)/02 Recomputations
If broker-dealers compute the reserve requirement as of Friday and have a deposit requirement, and recompute on Tuesday as of Monday night and do not have a deposit requirement, they must make a deposit on Tuesday based on Friday’s computation but then can immediately make a withdrawal based on Monday’s determination.
(SEC Staff to NYSE)
15c3-3(e)(3)/021 Reserve Deposits Focusing Around Bank Holidays
Deposits into the reserve bank account can be made on Wednesday in lieu of Tuesday when securities exchanges are open on the preceding Monday but it is considered a bank holiday.
(SEC Staff to NYSE) (NYSE Interpretation Memo 99-5, May 1999)
15c3-3(e)(3)/03 Required Weekly Computations For Monthly Computers
When a broker-dealer who calculates the Reserve Formula on a monthly basis finds that customer credits exceed $1,000,000 or Aggregate Indebtedness exceeds 800 per centum of net capital, the Reserve Formula computation must be made weekly until customer credits (free credit and other credit balances carried for customers) are less than $1,000,000 as reflected in four weekly computations, or aggregate indebtedness does not exceed 800 per centum of net capital whereupon the broker-dealer can return to a monthly calculation.
(SEC Staff to NYSE) (NYSE Interpretation Memo 78-1, May 1978)
15c3-3(e)(3)/04 Reducing Credits to Avoid Deposit - Prohibited
Once a deposit requirement is established, it may not be negated by using the proceeds of an unsecured or firm collateralized borrowing to reduce credit balances contained in the formula. The rule requires a deposit to be made.
(SEC Staff to NYSE) (NYSE Interpretation Memo 88-1, February 1988)
15c3-3(e)(3)/05 Excess Reserve Account Deposits Into Affiliated Banks – (Rescinded)(NYSE Interpretation Memo 03-3, April 2003)
15c3-3(e)(3)/051 Reserve Bank Account Cash Deposits with Parent and/or Affiliated Bank – (Rescinded)(FINRA Regulatory Notice 15-25)
15c3-3(e)(4) If the computation performed under paragraph (e)(3) of this section with respect to PAB accounts results in a deposit requirement, the requirement may be satisfied to the extent of any excess debit in the computation performed under paragraph (e)(3) of this section with respect to customer accounts of the same date. However, a deposit requirement resulting from the computation performed under paragraph (e)(3) of this section with respect to customer accounts cannot be satisfied with excess debits from the computation performed under paragraph (e)(3) of this section with respect to PAB accounts.
15c3-3(e)(5) In determining whether a broker or dealer maintains the minimum deposits required under this section, the broker or dealer must exclude the total amount of any cash deposited with an affiliated bank. The broker or dealer also must exclude cash deposited with a non-affiliated bank to the extent that the amount of the deposit exceeds 15% of the bank's equity capital as reported by the bank in its most recent Call Report or any successor form the bank is required to file by its appropriate Federal banking agency (as defined by section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813)).
15c3-3(e)(5)/01 Cash Deposits in Reserve Bank Accounts – Aggregation of Deposits for Concentration Calculation
Reserve Bank Accounts (Customers and PAB) maintained at the same non-affiliated bank which contain cash deposits, money market deposits, time deposits and certificates of deposit must be aggregated in determining the total amount deposited when computing the concentration calculation pursuant to SEA Rule 15c3-3(e)(5).
Note: See interpretations 15c3-3(a)(6)/0121 (Certificates of Deposit in Reserve Bank Accounts – Aggregation of Deposits for Concentration Calculation), 15c3-3(e)(1)/010 (Money Market Deposits in Reserve Bank Accounts – Aggregation of Deposits for Concentration Calculation) and 15c3-3(e)(1)/012 (Time Deposits in Reserve Bank Accounts – Aggregation of Deposits for Concentration Calculation).
(SEC Staff to FINRA) (FINRA Regulatory Notice 15-25)
15c3-3(f) Notification of banks. A broker or dealer required to maintain a Customer Reserve Bank Account and PAB Reserve Bank Account prescribed by paragraph (e)(1) of this section or who maintains a Special Account referred to in paragraph (k) of this section must obtain and preserve in accordance with § 240.17a-4 a written notification from each bank with which it maintains a Customer Reserve Bank Account, a PAB Reserve Bank Account, or a Special Account that the bank was informed that all cash and/or qualified securities deposited therein are being held by the bank for the exclusive benefit of the customers and account holders of the broker or dealer in accordance with the regulations of the Commission, and are being kept separate from any other accounts maintained by the broker or dealer with the bank, and the broker or dealer must have a written contract with the bank which provides that the cash and/or qualified securities will at no time be used directly or indirectly as security for a loan to the broker or dealer by the bank and will not be subject to any right, charge, security interest, lien, or claim of any kind in favor of the bank or any person claiming through the bank.
15c3-3(f)/01 Reserve Account Notification LetterThe notification letter required from the bank where the Reserve Account is established and maintained as required by SEA Rule 15c3-3(f) must be on bank stationary and signed by an authorized officer of the bank.
In addition, the letter must clearly state that said account “. shall be subject to no right, charge, security interest, lien or claim of any kind in favor of the bank or any person claiming through the bank.”
There must be no exceptions, either directly or indirectly, to this provision.
(SEC Staff to NASD) (NYSE Interpretation Memo 90-10, December 1990)
15c3-3(f)/02 Amendment to Reserve Account Notification LetterIf the notification letter required from the bank, where the Reserve Account is established and maintained, contains language similar to the following:
[bank] may and is hereby authorized to obey the order, judgment, decree, or levy of any court which order, judgment, decree, or levy relates in whole or in part to the [Reserve] Account.
then the notification letter must be amended to also include the following provisions:
(SEC Staff to NYSE) (NYSE Interpretation Memo 02-5, May 2002)
(SEC Staff to FINRA) (FINRA Regulatory Notice 15-25)
15c3-3(g) Withdrawals from the reserve bank account. A broker or dealer may make withdrawals from a Customer Reserve Bank Account and a PAB Reserve Bank Account if and to the extent that at the time of the withdrawal the amount remaining in the Customer Reserve Bank Account and PAB Reserve Bank Account is not less than the amount then required by paragraph (e) of this section. A bank may presume that any request for withdrawal from a reserve bank account is in conformity and compliance with this paragraph (g). On any business day on which a withdrawal is made, the broker or dealer shall make a record of the computation on the basis of which he makes such withdrawal, and he shall preserve such computation in accordance with § 240.17a-4.
15c3-3(g)/01 Federal Funds Sale or Loan
The sale or loan of Federal Funds on deposit in a Special Reserve Bank account whether made overnight or for an extended period are considered to be withdrawals without the computation required under SEA Rule 15c3-3(g).
(SEC Letter to Holland & Holland, August 20, 1984) (NYSE Interpretation Memo 84-9, November 1984)
15c3-3(g)/02 Reserve Computation Not Required - SubstitutionA Reserve Account computation is not required when qualified securities are withdrawn provided that federal funds or other qualified securities have been deposited prior to or at the same time as the withdrawal.
Market appreciation and/or accrued interest on a deposit cannot be withdrawn without preparing a current reserve computation.
(SEC Letter to Olde & Co., Inc., April 1, 1986) (NYSE Interpretation Memo 88-1, February 1988)
(SEC Staff to NYSE) (NYSE Interpretation Memo 92-3, January 1992)
(SEC Letter to The Ohio Company, March 21, 1985) (NYSE Interpretation Memo 88-1, February 1988)
(SEC Letter to PaineWebber Inc., April 17, 1986) (NYSE Interpretation Memo 88-1, February 1988)
15c3-3(g)/04 Timeframe for Withdrawal
Excess funds may be withdrawn from the Reserve Bank Account no later than one hour after the opening of banking business on the second business day following the computation.
(SEC Letter to Wall Street Clearing Co., April 11, 1984) (NYSE Interpretation Memo 88-1, February 1988)
15c3-3(g)/041 Multiple WithdrawalsMultiple withdrawals from the Reserve Bank Account are not specifically prohibited as long as they are done within the permissible time frame from the completion of the reserve computation until no later than one hour after the opening of banking business on the second business day following the computation date. Furthermore, the sum of the withdrawals cannot exceed the amount computed to be in excess of the requirement.
Broker-dealers should not make a practice of multiple withdrawals.
(SEC Staff to NYSE) (NYSE Interpretation Memo 03-2, March 2003)
(SEC Letter to NYSE, April 25, 1990) (NYSE Interpretation Memo 90-6, September 1990)
15c3-3(h) Buy-in of short security differences. A broker or dealer shall within 45 calendar days after the date of the examination, count, verification and comparison of securities pursuant to § 240.17a-13 or otherwise or to the annual report of financial condition in accordance with § 240.17a-5 or 240.17a-12, buy-in all short security differences which are not resolved during the 45-day period.
15c3-3(h)/01 Extensions of Time
See paragraph (n) of this section for information regarding time periods and processing of extensions of time.
(SEC Staff to NYSE)
15c3-3(i) Notification in the event of failure to make a required deposit. If a broker or dealer shall fail to make in its Customer Reserve Bank Account, PAB Reserve Bank Account or special account a deposit, as required by this section, the broker or dealer shall by telegram immediately notify the Commission and the regulatory authority for the broker or dealer, which examines such broker or dealer as to financial responsibility and shall promptly thereafter confirm such notification in writing.
15c3-3(i)/01 Hindsight Deficiency
If a broker-dealer which is presently in compliance with the cash reserve provisions of the rule, discovers by hindsight that a cash reserve deficiency existed as a result of an error in the determination of a required deposit, the broker-dealer would still be required to make notification to the bodies indicated in the rule. This notification shall be made by telegraphic or other appropriate means (registered letter) promptly after discovery with a representation that the broker-dealer is presently in compliance with the cash reserve provisions of the rule. It is suggested that the notification include an explanation as to the reason for the error and action taken to prevent a recurrence in the future.
(SEC Staff to NYSE) (NYSE Interpretation Memo 80-4, March 1980)
15c3-3(j) Treatment of free credit balances.15c3-3(j)(1) A broker or dealer must not accept or use any free credit balance carried for the account of any customer of the broker or dealer unless such broker or dealer has established adequate procedures pursuant to which each customer for whom a free credit balance is carried will be given or sent, together with or as part of the customer's statement of account, whenever sent but not less frequently than once every three months, a written statement informing the customer of the amount due to the customer by the broker or dealer on the date of the statement, and that the funds are payable on demand of the customer.
15c3-3(j)(2) A broker or dealer must not convert, invest, or transfer to another account or institution, credit balances held in a customer's account except as provided in paragraphs (j)(2)(i) and (ii) of this section.
15c3-3(j)(2)(i) A broker or dealer is permitted to invest or transfer to another account or institution, free credit balances in a customer's account only upon a specific order, authorization, or draft from the customer, and only in the manner, and under the terms and conditions, specified in the order, authorization, or draft.
15c3-3(j)(2)(ii) A broker or dealer is permitted to transfer free credit balances held in a customer's securities account to a product in its Sweep Program or to transfer a customer's interest in one product in a Sweep Program to another product in a Sweep Program, provided:
15c3-3(j)(2)(ii)(A) For an account opened on or after the effective date of this paragraph (j)(2)(ii), the customer gives prior written affirmative consent to having free credit balances in the customer's securities account included in the Sweep Program after being notified:
15c3-3(j)(2)(ii)(A)(1) Of the general terms and conditions of the products available through the Sweep Program; and
15c3-3(j)(2)(ii)(A)(2) That the broker or dealer may change the products available under the Sweep Program.
15c3-3(j)(2)(ii)(B) For any account:15c3-3(j)(2)(ii)(B)(1) The broker or dealer provides the customer with the disclosures and notices regarding the Sweep Program required by each self-regulatory organization of which the broker or dealer is a member;
15c3-3(j)(2)(ii)(B)(2) The broker or dealer provides notice to the customer, as part of the customer's quarterly statement of account, that the balance in the bank deposit account or shares of the money market mutual fund in which the customer has a beneficial interest can be liquidated on the customer's order and the proceeds returned to the securities account or remitted to the customer; and
15c3-3(j)(2)(ii)(B)(3)15c3-3(j)(2)(ii)(B)(3)(i) The broker or dealer provides the customer with written notice at least 30 calendar days before:
15c3-3(j)(2)(ii)(B)(3)(i)(A) Making changes to the terms and conditions of the Sweep Program;15c3-3(j)(2)(ii)(B)(3)(i)(B) Making changes to the terms and conditions of a product currently available through the Sweep Program;
15c3-3(j)(2)(ii)(B)(3)(i)(C) Changing, adding or deleting products available through the Sweep Program; or
15c3-3(j)(2)(ii)(B)(3)(i)(C)/01 Changing, Adding or Deleting Products Available Through a Sweep Program
For purposes of SEA Rule 15c3-3(j)(2)(ii)(B)(3)(i)(C), “changing, adding or deleting products available through the Sweep Program” includes changing, adding or deleting a money market mutual fund product or a bank in such Sweep Program, as applicable.
(SEC Staff to FINRA) (FINRA Regulatory Notice 21-27)
15c3-3(j)(2)(ii)(B)(3)(i)(D) Changing the customer's investment through the Sweep Program from one product to another.
15c3-3(j)(2)(ii)(B)(3)(ii) The notice must describe the new terms and conditions of the Sweep Program or product or the new product, and the options available to the customer if the customer does not accept the new terms and conditions or product.
15c3-3(k) Exemptions.15c3-3(k)(1) The provisions of this section shall not be applicable to a broker or dealer meeting all of the following conditions:
15c3-3(k)(1)(i) The broker's or dealer's transactions as dealer (as principal for its own account) are limited to the purchase, sale, and redemption of redeemable securities of registered investment companies or of interests or participations in an insurance company separate account, whether or not registered as an investment company; except that a broker or dealer transacting business as a sole proprietor may also effect occasional transactions in other securities for its own account with or through another registered broker or dealer;
15c3-3(k)(1)(ii) The broker's or dealer's transactions as broker (agent) are limited to:(a) The sale and redemption of redeemable securities of registered investment companies or of interests or participations in an insurance company separate account, whether or not registered as an investment company;
(b) the solicitation of share accounts for savings and loan associations insured by an instrumentality of the United States; and
(c) the sale of securities for the account of a customer to obtain funds for immediate reinvestment in redeemable securities of registered investment companies; and
15c3-3(k)(1)(iii) The broker or dealer promptly transmits all funds and delivers all securities received in connection with its activities as a broker or dealer, and does not otherwise hold funds or securities for, or owe money or securities to, customers.
15c3-3(k)(1)(iv) Notwithstanding the foregoing, this section shall not apply to any insurance company which is a registered broker-dealer, and which otherwise meets all of the conditions in paragraphs (k)(1) (i), (ii), and (iii) of this section, solely by reason of its participation in transactions that are a part of the business of insurance, including the purchasing, selling, or holding of securities for or on behalf of such company's general and separate accounts.
15c3-3(k)(2) The provisions of this section shall not be applicable to a broker or dealer:15c3-3(k)(2)(i) Who carries no margin accounts, promptly transmits all customer funds and delivers all securities received in connection with its activities as a broker or dealer, does not otherwise hold funds or securities for, or owe money or securities to, customers and effectuates all financial transactions between the broker or dealer and its customers through one or more bank accounts, each to be designated as “Special Account for the Exclusive Benefit of Customers of (name of the broker or dealer)”; or
15c3-3(k)(2)(i)/01 “Book-entry” Securities Belonging to Customers
This exemption is not available to a broker-dealer that meets the other standards stipulated in this provision but is accountable to customers for “book-entry” securities (such as Federal Agency securities) carried long in the customers' accounts on the broker-dealer’s books of account.
(SEC Letter to A. Webster Dougherty & Co., Inc., June 6, 1980)
(NYSE Interpretation Memo 81-9, December 1981)
15c3-3(k)(2)(i)/02 Certificates of Deposit - Outstanding Checks
Overnight balances, i.e., the amount of money represented by checks drawn on the (k)(2)(i) account and in the process of collection may under prescribed conditions and with limitations be invested in the (k)(2)(i) account in 14 day certificates of deposit.
The level of such investment is determined by using the 14 day moving average balance of checks issued but not presented to the account for payment, adjusted by known factors based on past experience and any applicable early withdrawal penalties, but in no event to exceed $1,000,000.
The broker-dealer will at all times keep no less than $100,000 of its own funds in the account and obtain a line of credit from the bank in which the account is held to ensure payment of presented checks and prevent any checks from being returned. If, for any reason the line of credit is not available, the bank must redeem as many CD’s as necessary to honor the checks presented.
Any restrictions, including those in SEA Rule 15c3-3(f), as to the Special Account must pertain also to the CD’s in the account.
(SEC Letter to Summit Corporation, April 22, 1986) (NYSE Interpretation Memo 88-1, February 1988)
Any restrictions included in SEA Rule 15c3-3(f) shall apply to the operating and the MMD accounts.
(SEC Letter to Equitable Financial Companies, September 30, 1988)
(NYSE Interpretation Memo 89-7, June 1989)
15c3-3(k)(2)(i)/04 Securities Transfer
A broker-dealer that is exempt under SEA Rule 15c3-3(k)(2)(i) may perform certificate transfers for its customer. It may also hold legal transfer items pending receipt of necessary legal documents, provided it promptly completes and forwards the transfer item.
The broker-dealer must act as promptly as practical under the circumstances and any unreasonable delay may result in disqualification for the exemption under SEA Rule 15c3-3(k)(2)(i).
(SEC Letter to Frazee, Olifiers & Co. Inc., March 3, 1973) (NYSE Interpretation Memo 90-11, December 1990)
(SEC Staff to NYSE) (NYSE Interpretation Memo 02-3, February 2002)
15c3-3(k)(2)(ii) Who, as an introducing broker or dealer, clears all transactions with and for customers on a fully disclosed basis with a clearing broker or dealer, and who promptly transmits all customer funds and securities to the clearing broker or dealer which carries all of the accounts of such customers and maintains and preserves such books and records pertaining thereto pursuant to the requirements of §§ 240.17a-3 and 240.17a-4 of this chapter, as are customarily made and kept by a clearing broker or dealer.
(SEC Letter to NASD, July 1, 1986) (NYSE Interpretation Memo 88-1, February 1988)
(SEC Letter to NASD, July 1, 1986) (NYSE Interpretation Memo 88-1, February 1988)
15c3-3(k)(2)(ii)/012 Receipt of Securities by Introducing BABD
An introducing BABD that solicits the receipt of securities so it can deliver them directly to the customers or the CBD, as appropriate, for the settlement of securities transactions and promptly transmits all customers’ securities received to the appropriate party can continue to qualify for the (k)(2)(ii) exemption. “Promptly transmit” means by noon of the next business day. Appropriate records under SEA Rule 17a 3 relating to the receipt and delivery of securities must be maintained.
(SEC Letter to NASD, July 1, 1986) (NYSE Interpretation Memo 88 1, February 1988)
15c3-3(k)(2)(ii)/013 Soliciting Receipt of Funds and Securities
An introducing BABD that solicits the receipt of customers’ funds and securities to deliver the funds and securities directly to the customer or CBD, as appropriate, will be considered a fully computing broker-dealer and is not exempt from the provisions of Rule 15c3-3. Appropriate books and records required by SEA Rules 17a-3 and 17a-4 must be maintained and preserved.
(SEC Letter to NASD, July 1, 1986) (NYSE Interpretation Memo 88-1, February 1988)
15c3-3(k)(2)(ii)/014 Sale of Registered Investment Company Shares
An introducing BABD that sells registered investment company shares on a wire order basis may not use the exemption provided by (k)(2)(ii) as to its sales of shares of investment companies. The exemption for this activity is provided by (k)(2)(i) which requires that books and records be maintained and preserved as required by SEA Rules 17a-3 and 17a-4.
In effect, introducing activity is exempt under (k)(2)(ii) and sale of investment company shares is exempt under (k)(2)(i).
(SEC Letter to NASD, July 1, 1986) (NYSE Interpretation Memo 88-1, February 1988)
15c3-3(k)(2)(ii)/015 Definition of “Promptly Transmit”
The term “promptly transmit” as used in SEA Rules 15c3-3 (k)(1) and (k)(2)(i) requires a broker-dealer to transmit customer funds and securities by noon of the next business day after receipt or by noon of the next business day following settlement date, whichever is later.
A broker-dealer operating pursuant to the (k)(2)(ii) exemptive provision must transmit customer funds and securities by noon of the next business day following receipt.
(SEC Staff to NYSE) (NYSE Interpretation Memo 95-3, May 1995)
15c3-3(k)(2)(ii)/016 Self-Clearing of Commodities Transactions
A broker-dealer may self-clear customers’ commodities transactions while operating pursuant to the (k)(2)(ii) exemptive provision of SEA Rule 15c3-3.
(SEC Staff to NYSE) (NYSE Interpretation Memo 95-3, May 1995)
(SEC Staff to NYSE) (NYSE Interpretation Memo 96-4, November 1996)
15c3-3(k)(3) Upon written application by a broker or dealer, the Commission may exempt such broker or dealer from the provisions of this section, either unconditionally or on specified terms and conditions, if the Commission finds that the broker or dealer has established safeguards for the protection of funds and securities of customers comparable with those provided for by this section and that it is not necessary in the public interest or for the protection of investors to subject the particular broker or dealer to the provisions of this section.
15c3-3(l) Delivery of securities. Nothing stated in this section shall be construed as affecting the absolute right of a customer of a broker or dealer to receive in the course of normal business operations following demand made on the broker or dealer, the physical delivery of certificates for:
15c3-3(l)(1) Fully-paid securities to which he is entitled, and,15c3-3(l)(2) Margin securities upon full payment by such customer to the broker or dealer of the customer's indebtedness to the broker or dealer; and, subject to the right of the broker or dealer under Regulation T (12 CFR 220) to retain collateral for its own protection beyond the requirements of Regulation T, excess margin securities not reasonably required to collateralize such customer's indebtedness to the broker or dealer.
15c3-3(m) Completion of sell orders on behalf of customers. If a broker or dealer executes a sell order of a customer (other than an order to execute a sale of securities which the seller does not own) and if for any reason whatever the broker or dealer has not obtained possession of the securities from the customer within 10 business days after the settlement date, the broker or dealer shall immediately thereafter close the transaction with the customer by purchasing securities of like kind and quantity: Provided, however, The term customer for the purpose of this paragraph (m) shall not include a broker or dealer who maintains an omnibus credit account with another broker or dealer in compliance with section 7(f) of Regulation T (12 CFR 220.7(f)).
Note to paragraph (m):
See 38 FR 12103, May 9, 1973 for an order suspending indefinitely the operation of paragraph (m) as to sell orders for exempted securities (e.g., U.S. Government and municipal obligations).
15c3-3(m)/01 Short Against the Box
A customer selling a security short against the box is considered to be selling securities he does not own.
(SEC Release 34-9922, January 2, 1973)
15c3-3(m)/02 Government Securities
The buy-in provision applies to all U.S. Government securities which have not been received from the customer within 30 calendar days after settlement date except mortgage backed securities, which must be bought in within 60 calendar days if not received from the customer pursuant to the requirements of the Treasury Rule.
(U.S. Treasury Department Release, February 28, 1994)
(SEC Staff to NYSE) (NYSE Interpretation Memo 95-3, May 1995)
15c3-3(m)/03 Exempt securities
Debt obligations of the World Bank, the Asian Development Bank and the Inter-American Development Bank are treated as exempt securities for purposes of SEA Rule 15c3-3(m) but are not considered qualified securities for use in the Reserve Bank Account.
(SEC Staff to NYSE)
15c3-3(m)/04 Dividend Claims Against Customers
Short positions in customer accounts arising from dividends received directly by customers upon which the broker/dealer has a claim are sales related items and therefore SEA Rule 15c3-3(m) applies. In such circumstances the buy- in period required by paragraph (m) shall be 10 business days from the payable date, unless a ten business day period after settlement date would result in the buy-in being required at a later date. (Note: Extensions of time under paragraph (n) apply.)
(SEC to Merrill Lynch, Pierce, Fenner & Smith Inc., December 17, 1973)
(NYSE Interpretation Memo 78-1, May 1978)
15c3-3(m)/05 Sale of Securities to be Received Under Employee Stock Option Plan
When a broker-dealer exercises an employee stock option for a customer, it must have acknowledgement from the issuer that a freely transferable, readily saleable and marketable security in negotiable form will be promptly delivered to the broker-dealer within 13 business days after exercise notice is given to the issuer (when acknowledgement is given by telephone, the condition should be restated in the transmittal to the issuer).
The exercise shall be subject to the following:
(SEC Staff to NYSE) (NYSE Interpretation Memo 88-20, November 1988)
15c3-3(m)/06 Foreign Issued, Foreign Settled Securities
Broker-dealers may, in lieu of the 10 day buy-in requirement for foreign issued, foreign settled securities apply alternative procedures (which are also applicable to fails to receive over 30 calendar days old of foreign issued, foreign settled securities).
The alternative procedure stipulates:
See interpretation 15c3-3(d)(2)/01 for complete details.
(SEC Letter to SIA, June 16, 1988) (NYSE Interpretation Memo 88-20, November 1988)
15c3-3(n) Extensions of time. If a registered national securities exchange or a registered national securities association is satisfied that a broker or dealer is acting in good faith in making the application and that exceptional circumstances warrant such action, such exchange or association, on application of the broker or dealer, may extend any period specified in paragraphs (d) (2) through (4), (h) and (m) of this section, relating to the requirement that such broker or dealer take action within a designated period of time to buy-in a security, for one or more limited periods commensurate with the circumstances. Each such exchange or association shall make and preserve for a period of not less than 3 years a record of each extension granted pursuant to paragraph (n) of this section which shall contain a summary of the justification for the granting of the extension.
15c3-3(n)/01 Extensions under (d)(2), (d)(3) and (h)
The Exchange will consider extension requests in accordance with paragraphs (d)(2), (d)(3) and (h) on all securities regardless of where they are listed or traded. Requests are to be submitted to the Exchange electronically, either by the Exchange’s PC (Personal Computer) System or directly from the member firm's computer to the Exchange's computer (CPU to CPU).
15c3-3(n)/02 Extensions under (m)
The Exchange will consider extension requests in accordance with subparagraph (m), “customer sales,” on all securities regardless of where they are listed or traded. Requests are to be submitted to the Exchange electronically, either by the Exchange’s PC (Personal Computer) System or directly from the member firm's computer to the Exchange's computer (CPU to CPU).
15c3-3(n)/03 Extension request authorization
All member organizations applying for extensions to the Exchange are required to have an officer, partner or an authorized person representing the firm, review all requests before submitting them to the Exchange. In accordance with NYSE Rule 342, “Offices - Approval, Supervision and Control”, the firm representative should insure that each request is in compliance with SEA Rule 15c3-3 and that the reason for the request is based on extenuating circumstances.
15c3-3(n)/04 Date Extensions Due
Member organizations should only recognize Exchange holidays in determining the due date for extensions of time. This procedure will eliminate the confusion created due to bank holidays on which the Exchange is open for business.
In order to allow the Exchange’s computerized extension system to properly process extensions permitted under SEA Rule 15c-3 all requests must be received on the due dates listed below. Adherence to this procedure will reduce the number of denied requests for improper dates and establish uniformity within member organizations.
| Subparagraph | Date Due |
| (d)(2) | on 30th calendar day after settlement date |
| (d)(3) | on 45th calendar day after settlement date |
| (h) | on 45th calendar day after settlement date |
| (m) | on 10th business day after settlement date |
(SEC Staff to FINRA) (FINRA Regulatory Notice 18-03)
15c3-3(n)/05 Buy-Ins
SEA Rule 15c3-3 requires member organizations to take prompt steps to obtain physical possession or control of securities pursuant to paragraphs (d)(2), (d)(3), (h) and (m) through a buy-in procedure or otherwise. The Rule, under paragraph (n), further provides for extensions of time when the Exchange is satisfied that the member organization is acting in good faith in making an application and has determined that exceptional circumstances warrant such action.
The fact that a buy-in has been instituted does not eliminate the need for an extension of time on the due date if possession and control is still required. Even if a member organization has been granted an extension of time, it may be bought-in under NYSE Rules 282 and 284 by the member organization with which the contract is open.
15c3-3(n)/06 Expired extensions
Member organizations are required to promptly close the transaction by purchasing securities of like quantity or other appropriate action upon the expiration of extension periods, when the security has not been received or an additional extension of time obtained, if appropriate.
15c3-3(n)/07 Municipal Securities Under Paragraph (d)
Municipal securities are subject to the provisions of paragraph (d).
(SEC Staff to NASD)
15c3-3(n)/08 Extensions Under Subparagraph (d)(2) - Fail to ReceiveThe specific information required for filing extension requests under subparagraph (d)(2), “fail to receive,” are as follows:
(NYSE Information Memo 94-30, July 29, 1994)
15c3-3(n)/09 Extensions Under Subparagraph (d)(3) - Dividends, Stock SplitsThe specific information required for filing extension requests under subparagraph (d)(3), “dividends, stock splits and similar distributions receivable,” are as follows:
(NYSE Information Memo 94-30, July 29, 1994)
15c3-3(n)/10 New Deficits Under Subparagraphs (d)(2) and (d)(3)
Under subparagraphs (d)(2) and (d)(3) no extensions of time are required if on the due date (30th (fails to receive) and 45th (dividends, stock splits) calendar day after settlement, respectively) the security position is not in deficit. However, if the security position goes into deficit after the due date, then an extension of time must be requested on the date the deficit occurred. Such an extension request must indicate that a deficit has now occurred by marking the request “new deficit”.
The specific information required for filing extension requests under paragraph (h), “short security differences”, are as follows:
Note: Contact the Credit Regulation Section of the Exchange prior to submitting any request under paragraph (h) at (212)656-3295.
(NYSE Information Memo 94-30, July 29, 1994)
15c3-3(n)/12 Reason for Extension Under Subparagraphs (d)(2), (d)(3) and Paragraph (h)
A list of permitted reasons and their code numbers follows.
The list of reasons cited below does not constitute a finding by the Exchange that the reason accompanying a request represents an “exceptional circumstance.” It is the responsibility of the member organization to determine that the reason cited actually applied and that the request is bona fide.
| Reason | Code | #Days Permitted | Limit Per Code | Special Remarks |
| Security in transfer | 70 | 14 | 2 | Final on second |
| Security in mail | 71 | 7 | 1 | Final |
| Buy-in issued | 72 | 14 | 2 | Final on second |
| Unable to buy-in | 73 | 14 | 2 | Final on second |
| Security at foreign depository | 74 | 14 | 2 | Final on second |
| Merger, exchange or reorganization | 75 | 14 | 2 | Final on second |
| Mutual fund | 76 | 14 | 2 | Final on second |
| SRO halted trading or buy-in privilege | 77 | 14 | 5 | Final on fifth |
| Lost certificate | 78 | 30 | 5 | Final on fifth |
| Other | 80 | 14 | None | Requires NYSE approval |
Note: When the permitted extension limit has been reached, member organizations must buy-in the security. If the member organization is unable to execute a buy-in due to no market, security in short supply or SRO has prohibited, the member organization must maintain record of action taken, reason not bought-in, and continue to attempt to execute the buy-in as soon as practicable.
15c3-3(n)/13 Reason for Extension Under Paragraph (m)
A list of reasons and their code numbers follows.
The inclusion of a list of reasons is not itself a finding by the Exchange that these reasons represent an “exceptional circumstance.” It is the responsibility of each firm to determine that the reason cited actually applied and that the request is bona fide. See interpretation 15c3-3(n)/133 for limits.
(SEC Staff to FINRA) (FINRA Regulatory Notice 18-03)
15c3-3(n)/131 Extensions on Foreign Securities - Code 52
Unlike other reason codes covering sale transactions, “Code 52” will require member organizations to use the appropriate settlement date on the extension form rather than the trade date. The Exchange’s computerized extension system has been programmed to compute ten (10) business days from settlement date to extension request date to insure compliance with the SEA rule. Since “Code 52” will be used to represent various reasons for an extension request, member organizations will be required to maintain a written record of each request granted/denied to reflect the facts regarding the specific circumstances that generated the extension request.
Member organizations may, in lieu of the ten (10) day buy-in requirements for foreign securities sold in a foreign securities market, apply the alternative procedures permitted under SEA Rule 15c3-3(d)(2). These procedures permit member organizations to treat foreign settled securities similar to fails to receive over thirty (30) calendar days old.
15c3-3(n)/132 Nine Extension Limit
A customer will not ordinarily be granted further extensions after accumulating nine extensions within a 12 month period, excluding requests for certain reasons clearly beyond the control of the customer. Upon receipt of a ninth extension request during a 12 month period, the submitting firm, and each other organization which previously requested one of the nine extensions for such customer, will receive notification that the customer will not be granted any further extensions until sufficient time has elapsed and the customer is again eligible under the guidelines.
The Exchange’s computerized extension system generates Report 5, “Final on Account - SEC,” as a means of notifying broker/dealers effected by this restriction. Report 5, under the column “Until Date,” indicates the date on which the customer’s restriction will be removed. This information eliminates the need for broker/dealers to research an account to determine the time period a restriction will be in effect.
Further, the computerized system is capable of advancing the “until date” if a special extension is granted or if a new firm should apply for an extension on behalf of the same customer. Accordingly, the “until date” will always represent a period of one year from the date of the ninth most recent extension charged to that customer.
15c3-3(n)/133 Limits by Reasons and Time Periods| Reason | Reason Code | No. Days Permitted | Count Toward 9-Limit | Final on Transac. | Limit Per Code | Special Remarks |
| In transfer | 40 | 14 | NO | YES | 2 | Final on Second |
| Death of a Seller | 41 | 14 | YES | YES | 2 | Final on Second |
| Can't BI-Security in Short Supply | 42 | 14 | NO | YES | 5 | Final on Fifth |
| Dividend Sold Before Payable Date | 43 | 14 | YES | YES | 2 | Final on Second |
| Still in Foreign Dep. | 44 | 14 | YES | YES | 2 | Final on Second |
| Sec. Exchange or Merger | 45 | 14 | YES | YES | 2 | Final on Second |
| Strike or X'mas | 46 | 14 | NO | NO | 0 | Only Used Upon NYSE Approval |
| Coming From Another Broker Under 412 | 47 | 14 | NO | YES | 2 | Final on Second |
| Customer Hospitalized | 48 | 14 | YES | YES | 2 | Final on Second |
| Lost Certificate | 49 | 30 | NO | NO | 5 | Final on Fifth |
| Other | 50 | 14 | NO | NO | 0 | Manually Appr. |
| Acts of God | 51 | 14 | NO | NO | 0 | Only Used Upon NYSE Approval |
| Foreign Security Sold Under Foreign Settlement Procedures | 52 | 14 | NO | YES | 2 | Final on Second |
Note: Customers are only permitted a total of nine (9) granted (chargeable) SEC extensions in any twelve month period. Any request for an extension or re-extension (multi) under a chargeable code that is received once a customer reaches limit of nine (9) extensions will be denied.
15c3-3(o) Security futures products -15c3-3(o)(1) Where security futures products shall be held. A broker or dealer registered with the Commission pursuant to section 15(b)(1) of the Act (15 U.S.C. 78o(b)(1)) that is also a futures commission merchant registered with the Commodity Futures Trading Commission pursuant to section 4f(a)(1) of the Commodity Exchange Act (7 U.S.C. 6f(a)(1)):
15c3-3(o)(1)(i) Shall hold a customer's security futures products in either a securities account or a futures account; and
15c3-3(o)(1)(ii) Shall establish written policies or procedures for determining whether customer security futures products will be placed in a securities account or a futures account and, if applicable, the process by which a customer may elect the type or types of account in which security futures products will be held (including the procedure to be followed if a customer fails to make an election of account type).
15c3-3(o)(2) Disclosure and record requirements.15c3-3(o)(2)(i) Except as provided in paragraph (o)(2)(ii), before a broker or dealer registered with the Commission pursuant to section 15(b)(1) of the Act (15 U.S.C. 78o(b)(1)) accepts the first order for a security futures product from or on behalf of a customer, the broker or dealer shall furnish the customer with a disclosure document containing the following information:
15c3-3(o)(2)(i)(A) A description of the protections provided by the requirements set forth under this section and SIPA applicable to a securities account;
15c3-3(o)(2)(i)(B) A description of the protections provided by the requirements set forth under section 4d of the Commodity Exchange Act (7 U.S.C. 6d) applicable to a futures account;
15c3-3(o)(2)(i)(C) A statement indicating whether the customer's security futures products will be held in a securities account or a futures account, or whether the firm permits customers to make or change an election of account type; and
15c3-3(o)(2)(i)(D) A statement that, with respect to holding the customer's security futures products in a securities account or a futures account, the alternative regulatory scheme is not available to the customer with relation to that account.
15c3-3(o)(2)(ii) Where a customer account containing an open security futures product position is transferred to a broker or dealer registered with the Commission pursuant to section 15(b)(1) of the Act (15 U.S.C. 78o(b)(1)), that broker or dealer may instead provide the statements described in paragraphs (o)(2)(i)(C) and (o)(2)(i)(D) of this section no later than ten business days after the date the account is received.
15c3-3(o)(3) Changes in account type. A broker or dealer registered with the Commission pursuant to section 15(b)(1) of the Act (15 U.S.C. 78o(b)(1)) that is also a futures commission merchant registered pursuant to section 4f(a)(1) of the Commodity Exchange Act (7 U.S.C. 6f(a)(1)) may change the type of account in which a customer's security futures products will be held; provided that:
15c3-3(o)(3)(i) The broker or dealer creates a record of each change in account type, including the name of the customer, the account number, the date the broker or dealer received the customer's request to change the account type, if applicable, and the date the change in account type became effective; and
15c3-3(o)(3)(ii) The broker or dealer, at least ten days before the customer's account type is changed:
15c3-3(o)(3)(ii)(A) Notifies the customer in writing of the date that the change will become effective; and
15c3-3(o)(3)(ii)(B) Provides the customer with the disclosures described in paragraph (o)(2)(i) of this section.
15c3-3(p) Segregation requirements for security-based swaps. The following requirements apply to the security-based swap activities of a broker or dealer.
15c3-3(p)(1) Definitions. For the purposes of this paragraph:15c3-3(p)(1)(i) The term cleared security-based swap means a security-based swap that is, directly or indirectly, submitted to and cleared by a clearing agency registered with the Commission pursuant to section 17A of the Act (15 U.S.C. 78q-1);
15c3-3(p)(1)(ii) The term excess securities collateral means securities and money market instruments carried for the account of a security-based swap customer that have a market value in excess of the current exposure of the broker or dealer (after reducing the current exposure by the amount of cash in the account) to the security-based swap customer, excluding:
15c3-3(p)(1)(ii)(A) Securities and money market instruments held in a qualified clearing agency account but only to the extent the securities and money market instruments are being used to meet a margin requirement of the clearing agency resulting from a security-based swap transaction of the security-based swap customer; and
15c3-3(p)(1)(ii)(B) Securities and money market instruments held in a qualified registered security-based swap dealer account or in a third-party custodial account but only to the extent the securities and money market instruments are being used to meet a regulatory margin requirement of a security-based swap dealer resulting from the broker or dealer entering into a non-cleared security-based swap transaction with the security-based swap dealer to offset the risk of a non-cleared security-based swap transaction between the broker or dealer and the security-based swap customer;
15c3-3(p)(1)(iii) The term qualified clearing agency account means an account of a broker or dealer at a clearing agency registered with the Commission pursuant to section 17A of the Act (15 U.S.C. 78q-1) that holds funds and other property in order to margin, guarantee, or secure cleared security-based swap transactions for the security-based swap customers of the broker or dealer that meets the following conditions:
15c3-3(p)(1)(iii)(A) The account is designated “Special Clearing Account for the Exclusive Benefit of the Cleared Security-Based Swap Customers of [name of broker or dealer]”;
15c3-3(p)(1)(iii)(B) The clearing agency has acknowledged in a written notice provided to and retained by the broker or dealer that the funds and other property in the account are being held by the clearing agency for the exclusive benefit of the security-based swap customers of the broker or dealer in accordance with the regulations of the Commission and are being kept separate from any other accounts maintained by the broker or dealer with the clearing agency; and
15c3-3(p)(1)(iii)(C) The account is subject to a written contract between the broker or dealer and the clearing agency which provides that the funds and other property in the account shall be subject to no right, charge, security interest, lien, or claim of any kind in favor of the clearing agency or any person claiming through the clearing agency, except a right, charge, security interest, lien, or claim resulting from a cleared security-based swap transaction effected in the account.
15c3-3(p)(1)(iv) The term qualified registered security-based swap dealer account means an account at a security-based swap dealer that is registered with the Commission pursuant to section 15F of the Act that meets the following conditions:
15c3-3(p)(1)(iv)(A) The account is designated “Special Reserve Account for the Exclusive Benefit of the Security-Based Swap Customers of [name of broker or dealer]”;
15c3-3(p)(1)(iv)(B) The security-based swap dealer has acknowledged in a written notice provided to and retained by the broker or dealer that the funds and other property held in the account are being held by the security-based swap dealer for the exclusive benefit of the security-based swap customers of the broker or dealer in accordance with the regulations of the Commission and are being kept separate from any other accounts maintained by the broker or dealer with the security-based swap dealer;
15c3-3(p)(1)(iv)(C) The account is subject to a written contract between the broker or dealer and the security-based swap dealer which provides that the funds and other property in the account shall be subject to no right, charge, security interest, lien, or claim of any kind in favor of the security-based swap dealer or any person claiming through the security-based swap dealer, except a right, charge, security interest, lien, or claim resulting from a non-cleared security-based swap transaction effected in the account; and
15c3-3(p)(1)(iv)(D) The account and the assets in the account are not subject to any type of subordination agreement between the broker or dealer and the security-based swap dealer.
15c3-3(p)(1)(v) The term qualified security means: 15c3-3(p)(1)(v)(A) Obligations of the United States;15c3-3(p)(1)(v)(B) Obligations fully guaranteed as to principal and interest by the United States; and
15c3-3(p)(1)(v)(C) General obligations of any State or a political subdivision of a State that: 15c3-3(p)(1)(v)(C)(1) Are not traded flat and are not in default; 15c3-3(p)(1)(v)(C)(2) Were part of an initial offering of $500 million or greater; and15c3-3(p)(1)(v)(C)(3) Were issued by an issuer that has published audited financial statements within 120 days of its most recent fiscal year end.
15c3-3(p)(1)(vi) The term security-based swap customer means any person from whom or on whose behalf the broker or dealer has received or acquired or holds funds or other property for the account of the person with respect to a cleared or non-cleared security-based swap transaction. The term does not include a person to the extent that person has a claim for funds or other property which by contract, agreement or understanding, or by operation of law, is part of the capital of the broker or dealer or, in the case of an affiliate of the broker or dealer, is subordinated to all claims of customers (including PAB customers) and security-based swap customers of the broker or dealer.
15c3-3(p)(1)(vii) The term special reserve account for the exclusive benefit of security-based swap customers means an account at a bank that meets the following conditions:
15c3-3(p)(1)(vii)(A) The account is designated “Special Reserve Account for the Exclusive Benefit of the Security-Based Swap Customers of [name of broker or dealer]”;
15c3-3(p)(1)(vii)(B) The account is subject to a written acknowledgement by the bank provided to and retained by the broker or dealer that the funds and other property held in the account are being held by the bank for the exclusive benefit of the security-based swap customers of the broker or dealer in accordance with the regulations of the Commission and are being kept separate from any other accounts maintained by the broker or dealer with the bank; and
15c3-3(p)(1)(vii)(C) The account is subject to a written contract between the broker or dealer and the bank which provides that the funds and other property in the account shall at no time be used directly or indirectly as security for a loan or other extension of credit to the broker or dealer by the bank and, shall be subject to no right, charge, security interest, lien, or claim of any kind in favor of the bank or any person claiming through the bank.
15c3-3(p)(1)(viii) The term third-party custodial account means an account carried by an independent third-party custodian that meets the following conditions:
15c3-3(p)(1)(viii)(A) The account is established for the purposes of meeting regulatory margin requirements of another security-based swap dealer;
15c3-3(p)(1)(viii)(B) The account is carried by a bank as defined in section 3(a)(6) of the Act or a registered U.S. clearing organization or depository or, if the collateral to be held in the account consists of foreign securities or currencies, a supervised foreign bank, clearing organization, or depository that customarily maintains custody of such foreign securities or currencies;
15c3-3(p)(1)(viii)(C) The account is designated for and on behalf of the broker or dealer for the benefit of its security-based swap customers and the account is subject to a written acknowledgement by the bank, clearing organization, or depository provided to and retained by the broker or dealer that the funds and other property held in the account are being held by the bank, clearing organization, or depository for the exclusive benefit of the security-based swap customers of the broker or dealer and are being kept separate from any other accounts maintained by the broker or dealer with the bank, clearing organization, or depository; and
15c3-3(p)(1)(viii)(D) The account is subject to a written contract between the broker or dealer and the bank, clearing organization, or depository which provides that the funds and other property in the account shall at no time be used directly or indirectly as security for a loan or other extension of credit to the security-based swap dealer by the bank, clearing organization, or depository and, shall be subject to no right, charge, security interest, lien, or claim of any kind in favor of the bank, clearing organization, or depository or any person claiming through the bank, clearing organization, or depository.
15c3-3(p)(2) Physical possession or control of excess securities collateral.15c3-3(p)(2)(i) A broker or dealer must promptly obtain and thereafter maintain physical possession or control of all excess securities collateral carried for the security-based swap accounts of security-based swap customers.
15c3-3(p)(2)(ii) A broker or dealer has control of excess securities collateral only if the securities and money market instruments:
15c3-3(p)(2)(ii)(A) Are represented by one or more certificates in the custody or control of a clearing corporation or other subsidiary organization of either national securities exchanges, or of a custodian bank in accordance with a system for the central handling of securities complying with the provisions of §§ 240.8c-1(g) and 240.15c2-1(g) the delivery of which certificates to the broker or dealer does not require the payment of money or value, and if the books or records of the broker or dealer identify the security-based swap customers entitled to receive specified quantities or units of the securities so held for such security-based swap customers collectively;
15c3-3(p)(2)(ii)(B) Are the subject of bona fide items of transfer; provided that securities and money market instruments shall be deemed not to be the subject of bona fide items of transfer if, within 40 calendar days after they have been transmitted for transfer by the broker or dealer to the issuer or its transfer agent, new certificates conforming to the instructions of the broker or dealer have not been received by the broker or dealer, the broker or dealer has not received a written statement by the issuer or its transfer agent acknowledging the transfer instructions and the possession of the securities or money market instruments, or the broker or dealer has not obtained a revalidation of a window ticket from a transfer agent with respect to the certificate delivered for transfer;
15c3-3(p)(2)(ii)(C) Are in the custody or control of a bank as defined in section 3(a)(6) of the Act, the delivery of which securities or money market instruments to the broker or dealer does not require the payment of money or value and the bank having acknowledged in writing that the securities and money market instruments in its custody or control are not subject to any right, charge, security interest, lien or claim of any kind in favor of a bank or any person claiming through the bank;
15c3-3(p)(2)(ii)(D) 15c3-3(p)(2)(ii)(D)(1) Are held in or are in transit between offices of the broker or dealer; or15c3-3(p)(2)(ii)(D)(2) Are held by a corporate subsidiary if the broker or dealer owns and exercises a majority of the voting rights of all of the voting securities of such subsidiary, assumes or guarantees all of the subsidiary's obligations and liabilities, operates the subsidiary as a branch office of the broker or dealer, and assumes full responsibility for compliance by the subsidiary and all of its associated persons with the provisions of the Federal securities laws as well as for all of the other acts of the subsidiary and such associated persons; or
15c3-3(p)(2)(ii)(E) Are held in such other locations as the Commission shall upon application from a broker or dealer find and designate to be adequate for the protection of security-based swap customer securities.
15c3-3(p)(2)(iii) Each business day the broker or dealer must determine from its books and records the quantity of excess securities collateral in its possession or control as of the close of the previous business day and the quantity of excess securities collateral not in its possession or control as of the previous business day. If the broker or dealer did not obtain possession or control of all excess securities collateral on the previous business day as required by this section and there are securities or money market instruments of the same issue and class in any of the following non-control locations:
15c3-3(p)(2)(iii)(A) Securities or money market instruments subject to a lien securing an obligation of the broker or dealer, then the broker or dealer, not later than the next business day on which the determination is made, must issue instructions for the release of the securities or money market instruments from the lien and must obtain physical possession or control of the securities or money market instruments within two business days following the date of the instructions;
15c3-3(p)(2)(iii)(B) Securities or money market instruments held in a qualified clearing agency account, then the broker or dealer, not later than the next business day on which the determination is made, must issue instructions for the release of the securities or money market instruments by the clearing agency and must obtain physical possession or control of the securities or money market instruments within two business days following the date of the instructions;
15c3-3(p)(2)(iii)(C) Securities or money market instruments held in a qualified registered security-based swap dealer account maintained by another security-based swap dealer or in a third-party custodial account, then the broker or dealer, not later than the next business day on which the determination is made, must issue instructions for the release of the securities or money market instruments by the security-based swap dealer or the third-party custodian and must obtain physical possession or control of the securities or money market instruments within two business days following the date of the instructions;
15c3-3(p)(2)(iii)(D) Securities or money market instruments loaned by the broker or dealer, then the broker or dealer, not later than the next business day on which the determination is made, must issue instructions for the return of the loaned securities or money market instruments and must obtain physical possession or control of the securities or money market instruments within five business days following the date of the instructions;
15c3-3(p)(2)(iii)(E) Securities or money market instruments failed to receive more than 30 calendar days, then the broker or dealer, not later than the next business day on which the determination is made, must take prompt steps to obtain physical possession or control of the securities or money market instruments through a buy-in procedure or otherwise;
15c3-3(p)(2)(iii)(F) Securities or money market instruments receivable by the broker or dealer as a security dividend, stock split or similar distribution for more than 45 calendar days, then the broker or dealer, not later than the next business day on which the determination is made, must take prompt steps to obtain physical possession or control of the securities or money market instruments through a buy-in procedure or otherwise; or
15c3-3(p)(2)(iii)(G) Securities or money market instruments included on the broker's or dealer's books or records that allocate to a short position of the broker or dealer or a short position for another person, for more than 30 calendar days, then the broker or dealer must, not later than the business day following the day on which the determination is made, take prompt steps to obtain physical possession or control of such securities or money market instruments.
15c3-3(p)(3) Deposit requirement for special reserve account for the exclusive benefit of security-based swap customers.
15c3-3(p)(3)(i) A broker or dealer must maintain a special reserve account for the exclusive benefit of security-based swap customers that is separate from any other bank account of the broker or dealer. The broker or dealer must at all times maintain in the special reserve account for the exclusive benefit of security-based swap customers, through deposits into the account, cash and/or qualified securities in amounts computed in accordance with the formula set forth in § 240.15c3-3b. In determining the amount maintained in a special reserve account for the exclusive benefit of security-based swap customers, the broker or dealer must deduct:
15c3-3(p)(3)(i)(A) The percentage of the value of a general obligation of a State or a political subdivision of a State specified in § 240.15c3-1(c)(2)(vi);
15c3-3(p)(3)(i)(B) The aggregate value of general obligations of a State or a political subdivision of a State to the extent the amount of the obligations of a single issuer (after applying the deduction in paragraph (p)(3)(i)(A) of this section) exceeds two percent of the amount required to be maintained in the special reserve account for the exclusive benefit of security-based swap customers;
15c3-3(p)(3)(i)(C) The aggregate value of all general obligations of States or political subdivisions of States to the extent the amount of the obligations (after applying the deduction in paragraph (p)(3)(i)(A) of this section) exceeds 10 percent of the amount required to be maintained in the special reserve account for the exclusive benefit of security-based swap customers;
15c3-3(p)(3)(i)(D) The amount of cash deposited with a single non-affiliated bank to the extent the amount exceeds 15 percent of the equity capital of the bank as reported by the bank in its most recent Call Report or any successor form the bank is required to file by its appropriate federal banking agency (as defined by section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813)); and
15c3-3(p)(3)(i)(E) The total amount of cash deposited with an affiliated bank.15c3-3(p)(3)(ii) A broker or dealer must not accept or use credits identified in the items of the formula set forth in § 240.15c3-3b except for the specified purposes indicated under items comprising Total Debits under the formula, and, to the extent Total Credits exceed Total Debits, at least the net amount thereof must be maintained in the Special Reserve Account pursuant to paragraph (p)(3)(i) of this section.
15c3-3(p)(3)(iii)15c3-3(p)(3)(iii)(A) The computations necessary to determine the amount required to be maintained in the special reserve account for the exclusive benefit of security-based swap customers must be made weekly as of the close of the last business day of the week and any deposit required to be made into the account must be made no later than one hour after the opening of banking business on the second following business day. The broker or dealer may make a withdrawal from the special reserve account for the exclusive benefit of security-based swap customers only if the amount remaining in the account after the withdrawal is equal to or exceeds the amount required to be maintained in the account pursuant to paragraph (p)(3) of this section.
(ii) (B) Computations in addition to the computations required pursuant to paragraph (p)(3)(iii)(A) of this section may be made as of the close of any business day, and deposits so computed must be made no later than one hour after the open of banking business on the second following business day.
15c3-3(p)(3)(iv) A broker or dealer must promptly deposit into a special reserve account for the exclusive benefit of security-based swap customers cash and/or qualified securities of the broker or dealer if the amount of cash and/or qualified securities in one or more special reserve accounts for the exclusive benefit of security-based swap customers falls below the amount required to be maintained pursuant to this section.
15c3-3(p)(4) Requirements for non-cleared security-based swaps -15c3-3(p)(4)(i) Notice. A broker or dealer registered under section 15F(b) of the Act (15 U.S.C. 78o-10(b)) as a security-based swap dealer or major security-based swap participant must provide the notice required pursuant to section 3E(f)(1)(A) of the Act (15 U.S.C. 78c-5(f)) in writing to a duly authorized individual prior to the execution of the first non-cleared security-based swap transaction with the counterparty occurring after the compliance date of this section.
15c3-3(p)(4)(ii) Subordination -15c3-3(p)(4)(ii)(A) Counterparty that elects to have individual segregation at an independent third-party custodian. A broker or dealer must obtain an agreement from a counterparty whose funds or other property to meet a margin requirement of the broker or dealer are held at a third-party custodian in which the counterparty agrees to subordinate its claims against the broker or dealer for the funds or other property held at the third-party custodian to the claims of customers (including PAB customers) and security-based swap customers of the broker or dealer but only to the extent that funds or other property provided by the counterparty to the independent third-party custodian are not treated as customer property as that term is defined in 11 U.S.C. 741 or customer property as defined in 15 U.S.C. 78lll(4) in a liquidation of the broker or dealer.
15c3-3(p)(4)(ii)(B) Counterparty that elects to have no segregation. A broker or dealer registered under section 15F(b) of the Act as a security-based swap dealer must obtain an agreement from a counterparty that is an affiliate of the broker or dealer that affirmatively chooses not to require segregation of funds or other property pursuant to section 3E(f) of the Act (15 U.S.C. 78c-5(f)) in which the counterparty agrees to subordinate all of its claims against the broker or dealer to the claims of customers (including PAB customers) and security-based swap customers of the broker or dealer.