SEC Issues No-Action Relief on Rule 15c3-3, Provides Extended Time for Consents to Sweep Accounts

The SEC issued a no-action letter to provide relief to broker-dealers with respect to certain requirements under amendments to Exchange Act Rule 15c3-3 ("Customer Protection - Reserves and Custody of Securities") that become effective on March 3, 2014. The relief relates to the requirement that broker-dealers obtain prior written consent from a customer for programs ("sweep programs") where a customer's free credit balances in a securities account are "swept" to a money market mutual fund of an account at a bank where deposits are FDIC-insured.

The amendments adopted on July 30, 2013 to the broker-dealer financial responsibility rules include the addition of new paragraph (j)(2)(ii) to Rule 15c3-3, which establishes customer disclosure, notice and affirmative consent requirements for programs ("sweep programs") where a customer's free credit balances in a securities account are "swept" to a money market mutual fund of an account at a bank where deposits are FDIC-insured. The final rules became effective on October 21, 2013, but the SEC issued an exemptive order providing broker-dealers with a temporary exemption from the requirements of certain amendments, including paragraph (j)(2)(ii), until March 3, 2014.

According to the incoming request from SIFMA to the SEC, it will be "unfeasibly difficult and expensive for broker-dealers to implement procedures and controls and make necessary technology changes" to obtain a customer's prior written consent as required by paragraph (j)(2)(ii) by March 3. Therefore, for the period beginning on March 3, 2014 and ending on March 3, 2015, the Division of Trading and Markets will not recommend that the SEC take action against a broker-dealer for not obtaining a customer's prior written consent to have free credit balances in the customer's securities account included in sweep programs, provided that certain conditions described in the letter are met.

See: SEC No-Action Letter. Related news: SEC Extends Compliance Date for Certain Broker-Dealer Financial Responsibility Rule Amendments (October 17, 2013); SEC Publishes Two Final Rules Regarding Broker-Dealers (Fed. Reg.) (with Lofchie Comment) (August 21, 2013).