SEC proposes changes to safeguard customers from potential broker-dealer failures

Steffy Bogdanova
July 13, 2023 11:12 am

The Securities and Exchange Commission has proposed to amend regulations mandating the separation of customer funds and securities from the assets of broker-dealers.

The proposed amendment specifically calls for securities trading firms to calculate the net cash owed to customers and other broker-dealers (known as PAB account holders) on a daily basis instead of weekly. It is obligatory for both parties to hold this cash in designated reserve bank accounts

SEC Chair Gary Gensler said:

I am pleased to support this proposal because, if adopted, it would help protect customers in the event that a broker-dealer fails. A key tenet of our securities laws is the segregation of customers’ cash and securities from a broker-dealer’s own account. Given the speed, scale, and volume of today’s market activity, I believe customers would benefit if broker-dealers carrying large credit balances made daily reserve account calculations and deposits. This frequency would better align with the inflows, swings, and balances that broker-dealers experience in today’s markets.

The US securities regulator explained that broker-dealers may encounter significant deposit obligations from time to time due to customer and PAB reserve calculations. SEC is suggesting that broker-dealers with a net cash balance of $250 million or more must perform daily calculations and promptly deposit the corresponding cash into the reserve account by the close of the subsequent business day.

The SEC emphasized that proposed modification aims to assist broker-dealers in aligning the cash they owe to their customers and external broker-dealers with the funds they deposit into designated reserve bank accounts. By shortening the interval between calculations, the proposal’s goal is to reduce the likelihood of accumulating significant disparities over time, thereby mitigating the potential for customers to suffer greater losses in the event of a broker-dealer’s failure.

The regulatory body is gathering public feedback on the proposal for a period of 30 days following the publication of the proposal in the Federal Register.

LeapRate Analyst

Experienced writer and journalist, working in the global online trading sector, Steffy is the Editor of LeapRate. She has previous experience as a copywriter and has been with the company since January 2020. Steffy has a British and American Studies degree from St. Kliment Ochridski University in Sofia.
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