No-action Relief for Certain Bank Sweep Receivables Under Rule 15c3-1
Summary
The Capital Steering Committee of SIFMA is writing to request assurances that the staff of the Division of Trading and Markets of the U.S. Securities and Exchange Commission will not recommend enforcement action pursuant to Rule 15c3-1 under the Securities Exchange Act of 1934 if broker-dealers treat certain receivables resulting from bank sweep programs as allowable assets.
Based on the foregoing, we request that the staff of the Division not recommend enforcement action to the Commission if a broker-dealer, when calculating net capital treats certain receivables arising from a bank sweep program as an allowable asset.
We also request that NYSE memo 05-11 dated February 15, 2005, which states that any receivable on the brokerdealer’s books resulting from a sweep may be deemed to be a non-allowable asset, be formally rescinded. We believe this interpretation is no longer relevant.
Excerpt
Michael A. Macchiaroli
Associate Director Division of Trading and Markets
U.S. Securities and Exchange Commission
100 F Street, N.E.
Washington, DC 20549
Re: Request for no-action relief regarding certain bank sweep receivables under Rule 15c3-1
Dear Mr. Macchiaroli,
The Capital Steering Committee of the Securities Industry and Financial Markets Association (“SIFMA”)1 is writing to request assurances that the staff of the Division of Trading and Markets (the “Division”) of the U.S. Securities and Exchange Commission (the “SEC” or the “Commission”) will not recommend enforcement action pursuant to Rule 15c3-1 under the Securities Exchange Act of 1934 (“Exchange Act”) if broker-dealers treat certain receivables resulting from bank sweep programs as allowable assets.
Background:
Under a “Sweep Program” as defined by CFR 240.15c3-3(a)(17) a broker or dealer may offer its customer the option to automatically transfer free credit balances in a securities account to either a money market mutual fund product or an account at a bank whose deposits are insured by the Federal Deposit Insurance Corporation, “FDIC”. These bank sweep accounts may be held at an affiliate of the broker-dealer or a third party. When a customer wishes to withdraw or otherwise transact using those funds, the money is automatically transferred back to the customer’s securities account either through proceeds from the redemption of money market mutual fund shares or remittance from the FDIC insured bank deposit account. These automatic transfers typically result in operational lags between the timing of the customer’s request and when the funds are available for use by the customer. To provide a seamless customer experience, certain broker-dealers elect to fund the customer’s account prior to the sweep transaction being completed so the customer has immediate use of the money. This prefunding of the customer’s account creates a receivable at the broker-dealer which must be evaluated for capital treatment under SEA 15c3-1. Payables to the bank are also often created as part of these transactions with cash normally settled on a net basis. The receivables discussed herein are considered on a ‘net’ basis (the extent that the receivable exceeds any payables to the bank that also are recorded as a part of these transactions).