SEC’s Division of Trading and Markets Publishes FAQs Regarding Broker-Dealer Financial Responsibility Rules in Response to COVID-19

On April 22, the Securities and Exchange Commission’s (SEC) Division of Trading and Markets (Division) published answers to two Frequently Asked Questions concerning the COVID-19 pandemic, as it relates to the broker-dealer financial responsibility rules.

First, the Division addressed whether broker-dealers will have additional time to transmit customer checks under paragraph (k)(2) of Rule 15c3-3 of the Securities Exchange Act of 1934, as amended (Exchange Act). In recognition that broker-dealers operating under the exemptions in paragraph (k)(2) of Rule 15c3-3 may be unable to access their premises due to the COVID-19 pandemic, and therefore may be delayed in forwarding customer checks during April, May or June, SEC staff will not recommend enforcement action during those months, if broker-dealers facing these challenges take additional time to transmit customer checks. This relief is subject to several conditions being satisfied, including, but not limited to, the affected broker-dealer transmitting customer checks as promptly as is practicable under the current circumstances and taking reasonable steps to notify customers of alternative ways to fund their respective accounts (e.g., sending checks directly to the clearing broker-dealer or funding the account online).

Second, the Division addressed whether broker-dealers will have additional time to conduct the quarterly securities count of physical certificates required by Rule 17a-13 of the Exchange Act. In recognition that some broker-dealers during April, May or June will be delayed in conducting quarterly securities counts as they relate to physical certificates due to the inability of their personnel to gain access to premises, the SEC staff will not recommend enforcement action against a broker-dealer, if such broker-dealer does not count physical securities in a quarterly securities count during said months. This relief is subject to several conditions being satisfied, including, but not limited to, the affected broker-dealer notifying the SEC’s Office of Compliance Inspections and Examinations and its Financial Industry Regulatory Authority Risk Monitoring Analyst of the nature of the problem it will have conducting a physical count and providing an estimate of the number and value of physical certificates that cannot be counted.

With respect to both items described above, the SEC staff plans to work with broker-dealers to evaluate whether additional measures may be appropriate in the event the COVID-19 pandemic continues into June.

The FAQs are available here.

SEC Announces Formation of Cross-Divisional COVID-19 Market Monitoring Group

On April 24, the Securities and Exchange Commission (SEC) announced the formation of an internal, cross- division COVID-19 Market Monitoring Group (COVID-19 Group). The COVID-19 Group will be a temporary, senior-level group that will assist various divisions and offices within the SEC with (1) developing staff actions and analysis related to COVID-19’s effect on markets, issuers and investors (including Main Street investors), and (2) responding to requests for information, analysis and assistance from other regulators and public sector partners.

The COVID-19 Group will also assist and support the COVID-19-related efforts of other federal financial agencies and bodies, including, but not limited to, the President’s Working Group on Financial Markets (PWG), the Financial Stability Oversight Council (FSOC) and the Financial Stability Board (FSB).

A copy of the announcement is available here.