On February 26, 2014 the Securities and Exchange Commission’s Division of Trading and Markets granted two separate requests for no-action relief, one submitted by the Securities Industry and Financial Markets Association (SIFMA) and the other by the Financial Industry Regulatory Authority. The SEC approved SIFMA’s request to obtain verbal consent (with written confirmation within 90 days) from each customer before the customer’s free credit balances in a securities account are swept into a money market mutual fund or Federal Deposit Insurance Corporation-insured bank account (sweep programs). In a separate letter, the SEC stated that it would not recommend enforcement action if a broker dealer held cash in a reserve account at a non-affiliated US branch of a foreign bank in making minimum deposit determinations required by SEC Rule 15c3-3.

An amendment to SEC Rule 15c3-3 (specifically paragraph (j)(2)(ii)(A)), which became effective on March 3, requires a broker dealer to obtain written consent from a customer before including the customer’s account in sweep programs. SIFMA requested no-action relief because most of its member firms use account-opening technology that makes obtaining written consent costly and unfeasible. Sweep programs typically include funds not invested in higher-yield instruments, and prior written consent could only be obtained by a manual process that would be expensive and burdensome. The SEC imposed four conditions with respect to the requested relief: (1) the broker dealer has obtained affirmative consent after providing notice of the general terms and conditions of the sweep program; (2) the customer specifically has consented to include free credit balances in the sweep program before the account agreement or written consent documentation is executed; (3) the broker dealer documents Items 1 and 2 at the time the account is opened; and (4) the broker dealer establishes a process reasonably designed to obtain written consent within 90 days and must stop including the customer’s balances in the sweep program if written consent is not obtained within 90 days. The no-action relief will be effective from March 3, 2014 to March 3, 2015. 

Under amended paragraph (e)(5) of SEC Rule 15c3-3, a broker dealer must determine (1) the minimum deposits with an affiliated bank and (2) cash deposits exceeding 15 percent of the bank’s equity capital, as reported in the bank’s most recent call report. The SEC granted relief allowing a broker dealers to hold cash in a reserve account at a non-affiliated US branch of a foreign bank, provided that the following conditions are satisfied: (1) the foreign bank has a pending exemptive request with the SEC on or before March 3, 2014 with respect to its US branch; and (2) the broker dealer uses the foreign bank’s equity capital instead of a call report to calculate the 15 percent bank equity capital threshold, on or after March 3, 2014. Commenters had previously expressed concerns to the SEC that call reports filed by US branches of foreign banks did not have equity capital line items.

Click here to read the SIFMA No-Action Letter and here to read the FINRA No-Action Letter.