Our markets have dramatically evolved since the 1972 adoption of Rule 15c3-3, otherwise known as the Customer Protection Rule.

Back in 1972, life was quite different. The public didn’t have access to the internet, smartphones, or social media. In the capital markets, we didn’t have anything that resembles modern electronic trading, and it took a full week to settle our securities transactions. Indeed, in 1972 we were just emerging from the paperwork crisis on Wall Street—in which stock exchanges literally closed from time to time because the back offices couldn’t keep up with the crush of paper.[1]

Today, a full half century later, is a very different time. The overwhelming majority of our markets trade electronically, and few Americans have even seen a physical stock certificate. Indeed, more than 95 percent of trades cleared through the Depository Trust Clearing Corporation are affirmed, confirmed, and allocated by 9:00 PM on the same day they’re traded.

Suffice it to say, it’s time to update these rules.

The Customer Protection Rule requires broker-dealers that custody customers’ cash and securities to maintain a special reserve bank account that contains the net cash a broker-dealer owes to its customers. The rule, which we’re updating, currently requires broker-dealers to calculate and deposit the appropriate balance for that account on a weekly basis.

Today’s amendments would change this requirement for the largest broker-dealers to daily computation rather than weekly.

As discussed in the adopting release, nine of the largest broker-dealers already make these calculations on a daily basis. Today’s adoption would standardize this practice for an estimated 49 broker-dealers whose total credit balances averaged at least $500 million in 2023. As mentioned in the release, these 49 carrying broker-dealers held more than 99 percent of aggregate total credits of all carrying broker-dealers in 2023.[2]

Today’s amendments are intended to reduce the likelihood of any mismatch between the amount of segregated funds and the net cash owed to customers and other broker-dealers. Further, lowering the likelihood of mismatches will help to protect the Securities Investor Protection Corporation (SIPC) Fund.

In response to commenters, the adopting release also adjusts the amount of the required buffer that broker-dealers must maintain with regard to their customer reserve deposits. Under the current rule, as amended in 1975, certain broker-dealers must maintain an additional three percent in segregated funds. Under today’s final rule, those firms calculating their customer reserve formula daily will be able to reduce this buffer from three percent to two percent. As discussed in the adopting release, with regard to the large broker-dealers covered by the rule, the difference of one percent would have freed up a monthly average of $7.4 billion of liquidity in 2023 to use elsewhere in their business.[3]

I’m pleased to support this adoption because it helps protect customers and the SIPC Fund, while promoting greater trust in the markets.

For their input on these matters, I’d like to thank Chair Claudia Slacik, and other members of the SIPC Board of Directors, and SIPC staff.

I’d also like to thank the members of the SEC staff who worked on this rulemaking, including:

• David Saltiel, Sheila Swartz, Abraham Jacob, Randall Roy, Mike Macchiaroli, Tom McGowan, Ray Lombardo, Andrea Orr, Yue Ding, John Prochilo, Nick Shwayri, and Roni Bergoffen in the Division of Trading and Markets;
• Jessica Wachter, Samim Ghamami, Juan Echeverri, Aysa Dordzhieva, Jasmine Boatner, Samantha Croffie, Oliver Richard, Jill Henderson, Lauren Moore, and Charles Woodworth in the Division of Economic and Risk Analysis; and
• Megan Barbero, Meridith Mitchell, Robert Teply, Donna Chambers, and Cynthia Ginsberg in the Office of the General Counsel.