SEC Seeks Changes to Protect Customers against Broker-Dealers’ Failure

Wednesday, 12/07/2023 | 22:57 GMT by Solomon Oladipupo
  • The regulator wants broker-dealers to calculate their net cash daily rather than weekly.
  • In recent months, the SEC introduced other changes to the securities trading industry.
SEC

The US securities regulator today (Wednesday) proposed an amendment to rules that require broker-dealers to segregate customer funds and securities from their own assets. Specifically, the Securities and Exchange Commission (SEC ) wants securities trading firms to calculate the net cash owed to customers and other broker-dealers daily instead of weekly. For both parties, this cash is required to be held in special reserve bank accounts.

SEC Eyes Change in Reserve Deposit

The SEC explained that the purpose of the proposed change is to help broker-dealers match the amount of cash they owe their customers and external broker-dealers, with the amount they deposit in reserve bank accounts meant for them.

As a result, the regulator is proposing that broker-dealers with net cash equal to or more than $250 million must calculate the amount daily and deposit the cash into the reserve by the end of the following business day. The regulator noted that this will make it less likely that ‘large mismatches' will build up over time, predisposing customers to greater losses should a broker-dealer fail.

“Given the speed, scale, and volume of today’s market activity, I believe customers would benefit if broker-dealers carrying large credit balances made daily reserve account calculations and deposits,” the Chair of the SEC, Gary Gensler noted. “This frequency would better align with the inflows, swings, and balances that broker-dealers experience in today’s markets.”

The SEC is currently collating public comments on the proposal. It mentioned that it will gather public opinions for 30 days after the proposal is published in the Federal Register.

The proposed amendment comes amid the SEC's crackdown on cryptocurrency exchanges whose offerings it believes are unregistered securities. In its recent lawsuit against Binance, the regulator raised concerns about the crypto exchange mixing clients' funds with its assets.

Recent Amendments by the SEC

Meanwhile, the SEC in recent months proposed other amendments to the rules binding the securities trading industry. In March, the financial market supervisor finalized a change to its policy that requires broker-dealer securities transactions to be settled within one business day (T+1).

On top of that, the regulator recently proposed amendments to its information collection procedures. The SEC said it wants broker-dealers, clearing agencies and security-based swap dealers, among others, to submit 'a number of filings' electronically, Finance Magnates reported.

eToro's CFDs fees; hirings at Exinity, Scope Markets; read today's news nuggets.

The US securities regulator today (Wednesday) proposed an amendment to rules that require broker-dealers to segregate customer funds and securities from their own assets. Specifically, the Securities and Exchange Commission (SEC ) wants securities trading firms to calculate the net cash owed to customers and other broker-dealers daily instead of weekly. For both parties, this cash is required to be held in special reserve bank accounts.

SEC Eyes Change in Reserve Deposit

The SEC explained that the purpose of the proposed change is to help broker-dealers match the amount of cash they owe their customers and external broker-dealers, with the amount they deposit in reserve bank accounts meant for them.

As a result, the regulator is proposing that broker-dealers with net cash equal to or more than $250 million must calculate the amount daily and deposit the cash into the reserve by the end of the following business day. The regulator noted that this will make it less likely that ‘large mismatches' will build up over time, predisposing customers to greater losses should a broker-dealer fail.

“Given the speed, scale, and volume of today’s market activity, I believe customers would benefit if broker-dealers carrying large credit balances made daily reserve account calculations and deposits,” the Chair of the SEC, Gary Gensler noted. “This frequency would better align with the inflows, swings, and balances that broker-dealers experience in today’s markets.”

The SEC is currently collating public comments on the proposal. It mentioned that it will gather public opinions for 30 days after the proposal is published in the Federal Register.

The proposed amendment comes amid the SEC's crackdown on cryptocurrency exchanges whose offerings it believes are unregistered securities. In its recent lawsuit against Binance, the regulator raised concerns about the crypto exchange mixing clients' funds with its assets.

Recent Amendments by the SEC

Meanwhile, the SEC in recent months proposed other amendments to the rules binding the securities trading industry. In March, the financial market supervisor finalized a change to its policy that requires broker-dealer securities transactions to be settled within one business day (T+1).

On top of that, the regulator recently proposed amendments to its information collection procedures. The SEC said it wants broker-dealers, clearing agencies and security-based swap dealers, among others, to submit 'a number of filings' electronically, Finance Magnates reported.

eToro's CFDs fees; hirings at Exinity, Scope Markets; read today's news nuggets.

About the Author: Solomon Oladipupo
Solomon Oladipupo
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About the Author: Solomon Oladipupo
Solomon Oladipupo is a journalist and editor from Nigeria that covers the tech, FX, fintech and cryptocurrency industries. He is a former assistant editor at AgroNigeria Magazine where he covered the agribusiness industry. Solomon holds a first-class degree in Journalism & Mass Communication from the University of Lagos where he graduated top of his class.
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