IMPLEMENTATION OF RECORDKEEPING PROVISIONS OF RULE 15c3-3
On January 15, 1973, just five days from today, the Securities and Exchange Commission rule restricting brokers' use of customers' funds and securities becomes effective. The SEC release dated November 10, 1972 explains that the rule requires that customers' funds held by a broker and the cash which is realized through the lending, hypothecation, and other permissible uses of customers' securities are deployed in safe areas of the broker business involved in customer service. To the extent that the funds are not deployed in these limited areas, they must be deposited in a reserve bank account. It further requires a broker to promptly obtain possession or control of all fully paid securities and excess margin securities carried by that broker for the account of customers and requires him to act within designated time frames where possession or control has not been established. Under the rule, the release states, a broker will have to maintain more current records.
ADMINISTRATION AND IMPACT
The Commission also announced that it had made every effort to make the rule flexible enough to be compatible with the accounting, clearance, settlement, and depository systems presently operating or being developed in the securities industry. When the rule was proposed on September 14, 1972, after two previously published proposals were discarded, it announced that the rule may substantially affect certain brokers' financing requirements and will necessitate activity on the part of these members of the industry to raise additional capital. .. nevertheless, despite the necessity on the part of the industry to make adjustments to meet the impact of the proposed rule, the program for public investor protection is paramount. This was repeated in the announcement of the adoption rule. It was also stated that the rule would be carefully monitored by the Commission to determine whether there will be a need in the public interest and for the protection of investors to tighten or relax any of the restraints and time frames embodied in the rule.
by John F. Walsh Partner, Chicago Office
Presented before the Financial Association of Saint Louis, Missouri— January 1973