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SEC Financial Responsibility Rules for Broker-Dealers

Julie Mendel

By

February 25, 2022

SEC Financial Responsibility Rules for Broker-Dealers

Broker-dealers have certain financial responsibility requirements imposed under the Securities Exchange Act of 1934 (Exchange Act). These rules are in place to help to protect customers from adverse consequences should a broker-dealer suffer from financial failure or collapse.


Broker-Dealer Requirements to Safeguard Customer Securities

The rules require safeguarding of customer securities and funds held by the broker-dealer and include requirements for broker-dealers to:


  • Keep a level of highly liquid assets that exceeds their liabilities so that in the event of financial failure, the broker-dealer will have sufficient liquid assets on hand to liquidate and pay all liabilities to its customers.

  • Segregate its customer securities and cash from the broker-dealer’s private activities which will increase availability of customer assets to be returned to customers should the broker-dealer fail.

  • Keep and maintain sufficient business records to account for all of its financial activities, and, in the event of examination, to assist regulators with confirming compliance with securities laws.

  • Provide certain notices to the SEC and other regulators if a financial-related event occurs, such as notifying when a firm’s net capital has fallen below its required minimum.


Amendments to Broker-Dealer Responsibility Rules

Recent amendments to the financial responsibility rules require a broker-dealer to, among other things:


  • Maintain a segregated reserve accounts for broker-dealer account holders and requires carrying broker-dealers to obtain and maintain possession and control of securities carried for a proprietary accounts of broker dealers (a PAB account), unless written notice to the account holder has been provided by the carrying broker-dealer that the securities may be used in the ordinary course of the carrying broker-dealer's securities business and no objection has been lodged.

  • Take physical possession or control of customer's fully paid and excess margin securities that allocate to a broker-dealer or non-customer short position, once that short position has aged more than 30 calendar days.

  • Cease conducting a securities business if certain insolvency events occur.

  • Deduct from net capital the excess of any deductible amount over the amount permitted by securities rules.

  • Keep and maintain records regarding their credit, market, and liquidity risk management controls.


The amendments apply only to a broker-dealer that has more than $1,000,000 in aggregate credit items as computed under the customer reserve formula of the rules, or $20,000,000 in capital including debt subordinated as required by the rules.


Learn More About Broker-Dealer Financial Responsibilities

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To order courses, visit the WebCE Catalog. For larger discounts for your firm or agency, contact our corporate sales team at sales@webce.com or call at 877-488-9322.

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