Notice2024-28058
Notice Pursuant to Rule 15c3-3a, Note H(b)(3) Regarding Application of the Customer Protection Rule Reserve Computations With Respect to U.S. Treasury Securities
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
November 29, 2024
Issuing agencies
Securities and Exchange Commission
Abstract
The Securities and Exchange Commission ("Commission") is publishing notice that broker-dealers may include a debit in the customer protection rule reserve computations when depositing cash, U.S. Treasury securities, and/or qualified customer securities to meet a margin requirement of the Fixed Income Clearing Corporation ("FICC") resulting from positions in U.S. Treasury securities of the customers of the broker-dealer.
Full Text
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<title>Federal Register, Volume 89 Issue 230 (Friday, November 29, 2024)</title>
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[Federal Register Volume 89, Number 230 (Friday, November 29, 2024)]
[Notices]
[Pages 94801-94802]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-28058]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-101729]
Notice Pursuant to Rule 15c3-3a, Note H(b)(3) Regarding
Application of the Customer Protection Rule Reserve Computations With
Respect to U.S. Treasury Securities
AGENCY: Securities and Exchange Commission.
ACTION: Notice.
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SUMMARY: The Securities and Exchange Commission (``Commission'') is
publishing notice that broker-dealers may include a debit in the
customer protection rule reserve computations when depositing cash,
U.S. Treasury securities, and/or qualified customer securities to meet
a margin requirement of the Fixed Income Clearing Corporation
(``FICC'') resulting from positions in U.S. Treasury securities of the
customers of the broker-dealer.
FOR FURTHER INFORMATION CONTACT: Randall W. Roy, Deputy Associate
Director; Raymond Lombardo, Assistant Director; or Sheila Dombal
Swartz, Senior Special Counsel, at (202) 551-5500, Office of Broker-
Dealer Finances, Division of Trading and Markets; Securities and
Exchange Commission, 100 F Street NE, Washington, DC 20549-7010.
SUPPLEMENTARY INFORMATION:
I. Background
On December 13, 2023, the Commission adopted rules under the
Securities Exchange Act of 1934 (``Exchange Act'') to amend the
standards applicable to covered clearing agencies for U.S. Treasury
securities (``U.S. Treasury securities CCAs'') to enhance risk
management practices for central counterparties in the U.S. Treasury
market and facilitate additional clearing of U.S. Treasury securities
transactions.\1\ The Commission also amended the formula for computing
reserve account requirements under the broker-dealer customer
protection rule.\2\ The amendments to the formula--which are set forth
in Rule 15c3-3a--permit margin required and on deposit with a U.S.
Treasury securities CCA to be included as a debit when computing
reserve requirements with respect to customers and proprietary accounts
of broker-dealers (``PAB''), subject to certain conditions.\3\ In
particular, the amendments added Item 15 to the customer and PAB
reserve computations on which to record the value of the debit and
prescribed conditions--set forth in Note H to Item 15--for including
the debit in the formulas.\4\ Each of the conditions in Note H needs to
be met for a broker-dealer to include a debit equal to the amount of
customer or PAB account holder margin required and on deposit at the
U.S. Treasury securities CCA.\5\
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\1\ See Standards for Covered Clearing Agencies for U.S.
Treasury Securities and Application of the Broker-Dealer Customer
Protection Rule With Respect to U.S. Treasury Securities, Exchange
Act Release No. 99149 (Dec. 13, 2023), 89 FR 2714 (Jan. 16, 2024)
(``Treasury Clearing Release'').
\2\ See Treasury Clearing Release, 89 FR at 2760-68. See also 17
CFR 240.15c3-3a (the formula for computing reserve requirements
under the customer protection rule) (``Rule 15c3-3a''); 17 CFR
240.15c3-3 (the customer protection rule) (``Rule 15c3-3''). Rule
15c3-3 requires a broker-dealer to compute the net amount of cash
owed to customers and PAB account holders under a formula in Rule
15c3-3a (``customer and PAB reserve computations''). Generally,
broker-dealers must perform their customer and PAB reserve
computations and make any required deposits in a special reserve
account at a bank weekly. See paragraph (e)(3) to Rule 15c3-3.
\3\ See Treasury Clearing Release, 89 FR at 2760-68.
\4\ See id. The amendments also modified Note B to Item 2 of the
customer and PAB reserve computations to provide that this item in
the reserve computations must include as a credit the market value
of customers' and PAB account holders' securities on deposit at a
U.S. Treasury CCA. See id. at 2761.
\5\ See Treasury Clearing Release, 89 FR at 2760-68.
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Certain of the conditions in Note H require the broker-dealer to
take a number of steps with respect to the customer and PAB account
holder margin in its custody.\6\ Other conditions provide that the U.S.
Treasury securities CCA that will receive the customer or PAB account
holder margin from the broker-dealer must have adopted rules--approved
by the Commission--that require it to take certain steps with respect
to calculating margin requirements and handling customer and PAB
account holder margin received from the broker-dealer.\7\ The
requirements of Note H are designed to permit the inclusion of the
debit in the customer and PAB reserve computations
[[Page 94802]]
under conditions that ``provide maximum protection'' to the broker-
dealer's customers and PAB account holders and that do not diminish the
customer protection objectives of Rules 15c3-3 and 15c3-3a.\8\
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\6\ See Rule 15c3-3a, Note H(a) and (b)(1).
\7\ See Rule 15c3-3a, Note H(b)(2).
\8\ See Treasury Clearing Release, 89 FR at 2760.
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Paragraph (b)(3) to Note H sets forth the final condition: that the
Commission has approved rules of the U.S. Treasury securities CCA that
meet the conditions of Note H and has published (and not subsequently
withdrawn) a notice that broker-dealers may include a debit in the
customer and/or PAB reserve computations when depositing cash, U.S.
Treasury securities, and/or qualified customer securities to meet a
margin requirement of the U.S. Treasury securities CCA resulting from
positions in U.S. Treasury securities of the customers or PAB account
holders of the broker-dealer.\9\ The Commission stated that its staff
would analyze the U.S. Treasury securities CCA's approved rules and
practices regarding the treatment of customer position margin and make
a recommendation as to whether they adequately implement the customer
protection objectives of the conditions set forth in Note H.\10\ If
satisfied with the staff's recommendation, the Commission stated it
will publish a positive notice.
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\9\ See Rule 15c3-3a, Note H(b)(3).
\10\ See Treasury Clearing Release, 89 FR at 2768.
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II. Notice
On November 21, 2024, the Division of Trading and Markets, pursuant
to delegated authority, approved proposed rule change SR-FICC-2024-007
(``FICC rule change'').\11\ The FICC rule change, among other things,
modifies FICC's Government Securities Division Rulebook to address the
conditions of Note H of the customer and PAB reserve computations set
forth in Rule 15c3-3a. FICC expects to implement the FICC rule change
by no later than March 31, 2025, and will announce the effective date
of the FICC rule change by an Important Notice posted to FICC's
website.\12\ The staff has analyzed the FICC rule change and made a
recommendation to the Commission that it adequately implements the
customer protection objectives of the conditions set forth in Note H.
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\11\ See Exchange Act Release No. 101695 (Nov. 21, 2024). FICC
also filed this proposed rule change as an Advance Notice (File No.
SR-FICC-2024-802) with the Commission pursuant to Section 806(e)(1)
of Title VIII of the Dodd-Frank Wall Street Reform and Consumer
Protection Act entitled the Payment, Clearing, and Settlement
Supervision Act of 2010, 12 U.S.C. 5465(e)(1), and Rule 19b-
4(n)(1)(i) under the Exchange Act, 17 CFR 240.19b-4(n)(1)(i). On
Nov. 21, 2024, the Commission issued a Notice of No Objection to
Advance Notice SR-FICC-2024-802.
\12\ See File No. SR-FICC-2024-007.
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Accordingly, the Commission is publishing this notice to advise
broker-dealers that they may include a debit in their customer and/or
PAB reserve computations when depositing cash, U.S. Treasury
securities, and/or qualified customer securities to meet a margin
requirement of FICC resulting from positions in U.S. Treasury
securities of the customers of the broker-dealer.\13\ Any changes to
the relevant FICC rules and practices that would undermine these
customer protection objectives could result in the Commission
withdrawing this notice, at which point a broker-dealer could no longer
include the debit in the customer and/or PAB reserve computations.
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\13\ See supra note 5 and accompanying text (discussing Note H
conditions).
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By the Commission.
Dated: November 25, 2024.
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-28058 Filed 11-27-24; 8:45 am]
BILLING CODE 8011-01-P
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