Customer Protection Rule

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On December 23, 2020, the Securities and Exchange Commission issued a statement and request for comment relating to custody of digital asset securities by broker-dealers, including certain conditional, time-limited relief for such arrangements. The statement will become effective 60 days after its publication in the Federal Register.
Continue Reading SEC Issues Statement on Custody of Digital Asset Securities by Special Purpose Broker-Dealers

On October 22, the staff of the Division of Trading and Markets of the Securities and Exchange Commission (DTM) issued a no-action letter (the No-Action Letter) to the Financial Industry Regulatory Authority (FINRA) providing time-limited relief for broker-dealers operating fully paid lending programs (FPL Programs) in which they borrow fully paid and excess margin securities from their customers without complying with the requirement that the broker-dealer physically deliver collateral supporting the loan to the customer making the loan. Paragraph (b)(3) of SEC Rule 15c3-3 (the customer protection rule) requires that a broker-dealer that borrows fully paid or excess margin securities from a customer enter an agreement with such customer that requires the broker-dealer to:
Continue Reading SEC Staff Issues No-Action Relief Addressing Customer Protection Rule Violations Despite the Objection of Two Commissioners

On July 8, in response to questions raised by market participants regarding the application of federal securities laws and the Financial Industry Regulatory Authority (FINRA) rules to the custody of digital asset securities and transactions, the staffs of the Division of Trading and Markets (the Division) and FINRA issued a joint statement. The joint statement seeks to articulate and clarify various considerations pertinent to many of the questions raised, particularly with respect to the Securities and Exchange Commission’s Customer Protection Rule applicable to SEC-registered broker-dealers.
Continue Reading Division of Trading and Markets and FINRA Staffs Issue Joint Statement on Broker-Dealer Custody of Digital Asset Securities

The Securities and Exchange Commission has announced the Customer Protection Rule Initiative (Initiative), under which broker-dealers that have failed to comply with the SEC’s Customer Protection Rule (SEC Rule 15c3-3) may self-report to the SEC in exchange for potentially favorable settlement terms.
Continue Reading SEC Announces Self-Reporting Initiative for Broker-Dealers Who Have Failed To Comply With Its Customer Protection Rule