SEC Mandates Daily Reserve Calculations for Large Broker-Dealers
Broker-Dealers
Compliance Operations
December 31, 2024
The Case
The Securities and Exchange Commission (SEC) has adopted amendments to Rule 15c3-3, commonly known as the customer protection rule, to require certain broker-dealers to increase the frequency with which they perform computations of the net cash owed to customers and other broker-dealers (known as PAB account holders) from weekly to daily.
The Commission also adopted amendments to Rule 15c3-3 and Rule 15c3-1 (the broker-dealer net capital rule) to permit certain broker-dealers performing a daily customer reserve computation to decrease the required 3 percent “buffer” in the customer reserve bank account by reducing the customer-related receivables, or “aggregate debit items,” charge from 3 percent to 2 percent in the computation.
Regulatory Implications
The SEC’s amendments highlight the importance of dynamic reserve management to protect customers and maintain market trust. Key takeaways include:
Daily Reserve Computations for Large Firms
Broker-dealers with average total credits of $500 million or more must perform daily reserve computations to better align cash owed to customers and PAB account holders with reserve bank account deposits.Reduced Buffer for Daily Calculations
Eligible broker-dealers adopting daily reserve computations can lower the 3 percent “aggregate debit items” buffer to 2 percent, reflecting the improved safeguards offered by daily oversight.Compliance Deadlines
Broker-dealers crossing the $500 million credit threshold by June 30, 2025, must transition to daily reserve calculations by December 31, 2025. Voluntary adoption is permitted earlier, with a written notification to the designated examining authority required 30 days prior.
Practical Guidance for Firms
To comply with these amendments and facilitate implementation, broker-dealers should consider the following steps:
Evaluate Eligibility for Reduced Buffer: Firms meeting the daily computation criteria can assess the benefits of reducing the reserve buffer and prepare the necessary filings.
Update Reserve Computation Systems: Systems may need adjustments or upgrades to accommodate daily reserve computations accurately and efficiently.
Review Compliance Timelines: Firms should verify their average total credit thresholds and establish a clear roadmap for meeting the December 31, 2025, compliance deadline.
Communicate with Examiners: For early adoption of the daily computation schedule, notify the designated examining authority at least 30 days in advance.
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