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FINRA Updates Guidance on Financial and Operational Rules

FINRA updated its guidance concerning SEA Rules 15c3-1 ("Net capital requirements for brokers or dealers") and 15c3-3 ("Customer protection-reserves and custody of securities"). The updates to the Interpretations of Financial and Operational Rules were communicated to FINRA by the SEC Division of Trading and Markets.

The latest interpretations relate to:

  • SEA Rule 15c3-1(c)(1)(i) concerning the indebtedness in the proprietary trading account of a broker-dealer;

  • SEA Rule 15c3-1(c)(2)(i)(G) concerning services arrangements with a parent or an affiliate;

  • SEA Rule 15c3-1(c)(2)(iv)(B) concerning deficits or unsecured balances in securities transactions with a Federal Reserve bank;

  • SEA Rule 15c3-1(c)(2)(iv)(C) concerning unsecured receivables and related payables;

  • SEA Rule 15c3-1(c)(2)(viii)(C) concerning the offsetting of sale commitments in an unregistered offering;

  • SEA Rule 15c3-1(e) concerning service arrangements with a parent or an affiliate;

  • SEA Rule 15c3-3(j)(2)(ii)(B)(3)(i)(C) concerning change, addition or deletion of products available through a sweep program;

  • the exclusion of omnibus accounts from the requirements of SEA Rule 15c3-3 (Exhibit A - Note E(5));

  • netting a customer's account balances when preparing the reserve formula computation under the alternative standard (SEA Rule 15c3-3 (Exhibit A - General)); and

  • term debits in customers' accounts collateralized by securities subject to use restrictions (SEA Rule 15c3-3 (Exhibit A - Item 10)).

FINRA also updated interpretations on:

  • SEA Rule 15c3-1(a) concerning the additional net capital requirement;

  • SEA Rule 15c3-1(c)(1) concerning accrued liability for concessions or commissions payable;

  • SEA Rule 15c3-1(c)(2)(iv)(C) concerning concessions receivable from individual variable annuities that are allowable for 30 days and group variable annuities where an offset is permitted;

  • SEA Rule 15c3-1(c)(2)(viii)(C) concerning the offset of sale commitments in a registered offering;

  • SEA Rule 15c3-3(a)(1) concerning customer and non-customer classification; and

  • SEA Rule 15c3-3 (Exhibit A - Item 10) concerning debit balances in customers' accounts collateralized by securities subject to use restrictions.

FINRA rescinded certain interpretations of (i) SEA Rule 15c3-1(c)(2)(iv)(C) concerning commissions or concessions receivable versus commissions or concessions payable and (ii) SEA Rule 15c3-3 (Exhibit A - Item 11) concerning the Federal Reserve Bank as a non-customer. FINRA stated that firms maintaining hardcopy versions of the interpretations may refer to the updated page accompanying the notice.


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