January 4, 2022

Treasury Grants Small Broker-Dealer Recordkeeping Exemption for QFCs

Steven Lofchie Commentary by Steven Lofchie

Treasury announced that, after the necessary consultation with the FDIC and the SEC, it is providing a retail broker-dealer with a conditional exemption (see Dodd-Frank Section 210(c)(8)(H)) from certain Dodd-Frank recordkeeping requirements for certain qualified financial contracts (“QFCs”).

The exemption was granted in consideration of the relevant QFC portfolio’s (i) size, risk, and complexity, (ii) trading frequency and leverage, and (iii) the interconnectedness of the broker-dealer to the rest of the financial system. As described in the exemption, the broker-dealer primarily engages in client brokerage agreements, cash market QFCs governed by the brokerage agreements and a master clearing agreement with the broker-dealer's clearing firm, an unaffiliated broker-dealer. The broker-dealer also represented that the only counterparties to the QFCs would be "customers" for purposes of the Securities Investor Protection Act ("SIPA"), and that the broker-dealer was not registered as a futures commission merchant under the Commodity Exchange Act. (The effect of these representations is that the QFCs are limited to margin loan agreements, and would not include repo agreements since repo counterparties are not "customers" for purposes of SIPA.)

Treasury ultimately determined that (i) the portfolio does not present a high likelihood of meeting the financial stability exception to the transfer requirement of Section 210(a)(1)(O) of the Dodd-Frank Act, and (ii) if it did not meet the financial stability exception, the FDIC would not require detailed records. In addition, Treasury stated that it intends to reassess the exemption in five years, and may request updated information from the firm.


This exemption is relevant to other retail-oriented, bank-affiliated broker-dealers, the primary credit activity of which is lending under margin agreements.

Email me about this

Premium Content

Available only to Premium subscribers.