The SEC Division of Trading and Markets (the "Division") staff reminded broker-dealers operating programs in which they borrow securities from their customers of their obligations under SEA Rule 15c3-3 ("Customer protection-reserves and custody of securities").
As previously covered, the Division issued a no-action letter in October that indicated that some broker-dealers were operating fully-paid borrow programs that violated Rule 15c3-3 because of the manner in which collateral posted by the broker-dealer was held. In the same letter, the staff indicated that it would not recommend enforcement action against any such broker-dealer if the relevant fully-paid borrow program was in existence at the time of the letter and is otherwise in compliance with Rule 15c3-3, and where any noncompliance relating to collateral delivery is addressed by April 22, 2021. (Two of the SEC Commissioners objected to the nature of the no-action letter.)
The new staff statement provided no further relief and stated that firms "should be mindful of the importance of complying with the requirements of Rule 15c3-3 and ensuring that retail investor funds receive the full protections afforded under the Securities Investor Protection Act." The letter also urged broker-dealers to reach out to the staff with questions.
The SEC Division of Trading and Markets issued a warning letter to broker-dealers operating programs in which they borrow fully paid margin securities from their customers.
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