SEC Clarifies "Ready Market" for Foreign Equity Securities under Net Capital Rule

The SEC Division of Trading and Markets issued a no-action letter to FINRA amending the conditions (set forth in a prior letter dated November 6, 2012) under which foreign equity securities may be treated as having a ready market for purposes of SEC Rule 15c3-1 (the "net capital rule"). The previous no-action letter from 2012 required that trading volume in the relevant security average at least 100,000 shares per day or $500,000 in trading value per day, but also required that each firm exclude its own trading from the volume determination. The combined requirements complicated calculations significantly and sometimes resulted in a security having a ready market for one firm but not another.

The new no-action letter eliminates the requirement that a firm's own trading volume be excluded from the calculation and replaces it with the more straightforward condition that any relevant calculations are "bona fide," i.e., that a firm cannot manufacture trading volume in order for a security to be deemed to have a ready market.