SEA Rule 15c3-3 and Related Interpretations

Certain accounts shown on the books of the broker-dealer shall be classified as “customer” or “non-customer” as follows:

Customer

• Any person or entity from whom or on whose behalf the reporting broker-dealer has received or acquired or holds funds or securities except those specifically excluded as “non-customers”;
• Special and limited partners’ non-capital and non-subordinated accounts;
• Accounts of officers, other than principal officers, or directors. (The president, executive vice president, treasurer, secretary or any person performing a similar function are principal officers.);
• Non-subordinated accounts of subordinated lenders, other than general partners’, directors’ and principal officers’ (see interpretation 15c3-3(a)(1)/02);
• A broker or dealer that maintains an omnibus account with the reporting broker-dealer for the account of customers in compliance with Regulation T;
• A broker-dealer to the extent it maintains an account designated as “Special Custody Account for the Exclusive Benefit of Customers of (name of broker-dealer)” which meets the criteria described in interpretation 15c3-3(c)(7)/01;
• A broker-dealer to the extent it maintains an account designated as “Special Custody Account for Accommodation Transfers for the Exclusive Benefit of Customers of (name of broker-dealer)” which meets the criteria described in interpretation 15c3-3(c)(7)/02;
• A joint account, custodian account, participation in a hedge fund or limited partnership or similar type accounts or arrangements between a customer and a non-customer;
• A non broker-dealer affiliate or subsidiary of the reporting broker-dealer;
• The other participant(s)’ interest in a joint trading and investment account carried on the books of the reporting broker-dealer, and the other participant(s)’ interest in a Joint Foreign and Domestic Arbitrage Account when such other participant(s) is a “customer”;
• Non-proprietary accounts of a foreign bank; and
• Non-proprietary accounts of a foreign broker-dealer.

Non-Customer

• General partner;
• Director or principal officer, i.e., president, executive vice president, treasurer, secretary or any person performing a similar function;
• A broker or dealer (other than omnibus accounts);
• A non-bank registered municipal securities dealer;
• A bank municipal securities dealer that either does or does not transact its municipals securities business through a separately identified department or division, and either does or does not register as an undivided entity is a non-customer only with respect to its transactions effected in the capacity of a municipal securities dealer. All other transactions shall be treated as customer transactions;
• A foreign bank which engages in the business of buying and selling securities for its own account through a broker or otherwise within the meaning of Section 3(a)(5) of the Act (i.e., dealer), provided the foreign bank must not fall within the definition of “bank” set forth in Section 3(a)(6) of the Act (see interpretation 15c3-3(a)(1)/032). If the foreign bank falls within the definition of a bank, it is to be treated as a customer;
• The other participant(s)’ interest in a joint trading and investment account carried on the books of the reporting broker-dealer and the other participant(s)’ interest in a Joint Foreign and Domestic Arbitrage Account when such other participant(s) is a non-customer;
• The Federal Reserve Bank; and
• The proprietary account of a foreign broker-dealer would be treated as a non-customer.

Note: Pursuant to SEA Rule 15c3-3(a)(16), adopted under SEA Release No.70072 (July 30, 2013), certain previous classifications under “non-customer” are now defined as “PAB account.” However, for purposes of the customer reserve formula computation under SEA Rule 15c3-3a (Exhibit A) and the interpretations thereunder, references to “non-customer” will continue to include accounts which are defined as PAB accounts.

(SEC Releases 34-9922, January 2, 1973; 34-10429, October 12, 1973; 34-11854, November 20, 1975; 34-11969, January 2, 1976)
(SEC Letter to NASD, July 15, 1974) (SEC Staff to NYSE) (NYSE Interpretation Memo 78-1, May 1978)
(SEC Staff to NYSE) (NYSE Interpretation Memo 01-05, August 2001) (SEC Staff to FINRA) (FINRA Regulatory Notice 15-25)
(SEC Staff to FINRA) (FINRA Regulatory Notice 21-27)

In the event the account is that of an individually registered broker-dealer or of an individual who has a relationship with the carrying broker-dealer other than that of a client-customer, the account is a “non-customer” of the carrying broker-dealer.

(SEC Staff to NYSE) (NYSE Interpretation Memo 89-7, June 1989)

(FINRA Regulatory Notice 15-25)

(SEC Staff to NYSE) (NYSE Interpretation Memo 02-3, February 2002)

(SEC Letter to Arnhold & S. Bleichroeder, Inc., June 28, 1974) (NYSE Interpretation Memo 78-1, May 1978)

1. A written non-conforming subordination agreement exists between the broker-dealer carrying the account (the “Carrying Broker-Dealer”) and the entity subordinating the account (the “Subordinating Entity”), which subordinates claims for cash and securities in the account to the claims of all customers of the Carrying Broker-Dealer;
2. The non-conforming subordination agreement is signed by a duly authorized officer of the Carrying Broker-Dealer and the Subordinating Entity;
3. The non-conforming subordination agreement includes representations by the Subordinating Entity that the account: (i) does not give rise to a customer claim under the Securities Investor Protection Act of 1970 (“SIPA”) or the U.S. Bankruptcy Code; and (ii) does not contain assets of any person other than the Subordinating Entity;
4. The Subordinating Entity obtains a written opinion of outside counsel that it is legally authorized to make the subordination in the non-conforming subordination agreement; and
5. The non-conforming subordination agreement has been approved by the broker-dealer’s Designated Examining Authority (“DEA”).

Note: Under SIPA, customers are a class of creditor. By subordinating to all customers, the subordinating entity is subordinating to the “any” portion of “any or all creditors” in the exclusion from the term “customer” set forth in the SIPA definition under 15 U.S.C. §78lll(2) and therefore does not have a customer claim in a SIPA proceeding.

Note: Any non-conforming subordination agreements that have been previously approved by the DEA, shall not be subject to the provisions of this revised interpretation.

(SEC Staff to NYSE) (NYSE Interpretation Memo 96-3, April 1996) (NYSE Interpretation Memo 97-6, October 1997)
(SEC Staff to FINRA) (FINRA Regulatory Notice 15-25)

(SEC Staff to FINRA) (FINRA Regulatory Notice 15-25)

(August 2001)

(August 2001)

Foreign banks may establish a separate “proprietary” account which may be treated as a broker-dealer if the account is clearly labeled as such and a written agreement is obtained in which the foreign bank acknowledges that all transactions in the account are proprietary transactions of the foreign bank acting in a dealer capacity. This account is treated as a non-customer for purposes of the customer reserve formula computation and as a PAB account for purposes of the PAB reserve formula computation, provided that the foreign bank does not fall within the definition of “bank” set forth in Section 3(a)(6) of the ’34 Act, which provides as follows:

“The term “bank” means (A) a banking institution organized under the laws of the United States, (B) a member bank of the Federal Reserve System, (C) any other banking institution, whether incorporated or not, doing business under the laws of any State or of the United States, a substantial portion of the business of which consists of receiving deposits or exercising a fiduciary power similar to those permitted to national banks under Section 11(k) of the Federal Reserve Act, as amended, and which is supervised and examined by State or Federal authority having supervision over banks, and which is not operated for the purpose of evading the provisions of this title, and (D) a receiver, conservator, or other liquidating agent of any institution or firm included in clauses (A), (B) or (C) of this paragraph.”

If the foreign bank falls within the above definition of a bank, it would be treated as a customer for purposes of SEA Rule 15c3-3.

Note: There are at least three forms of foreign banking operations that a broker-dealer may be doing business with (1) representative offices; (2) agencies; and (3) branches. Agencies and branches are subject to certain reporting requirements of the Federal Reserve Board and some states have specific regulations concerning foreign bank entry and operation, including examination and supervision and may be required to be treated as customers. Representative offices generally do not conduct normal banking operations but merely act as liaison offices between the head office and its customers. Generally speaking, there are no state regulations as to examination and supervision of representative offices other than simple registration with the state in which business is being conducted. Representative offices may be eligible for treatment as a non-customer.

(SEC Letter to UBS-DB Corporation, March 5, 1977)
(SEC Staff to NYSE) (NYSE Interpretation Memo 78-2, May 1978) (NYSE Interpretation Memo 01-05, August 2001)
(SEC Staff to FINRA) (FINRA Regulatory Notice 15-25)

Transactions recorded in non-proprietary accounts of a foreign broker-dealer would be treated as a customer for purposes of SEA Rule 15c3-3.

(SEC Staff to NYSE) (NYSE Interpretation Memo 01-05, August 2001)
(SEC Staff to FINRA) (FINRA Regulatory Notice 15-25)

Broker-dealers should note the requirements of SEA Rules 8c-1 and 15c2-1; the difference in the definition of “customer” from that shown in SEA Rule 15c3-3, and note in particular the requirement at subparagraph (a)(3) which prohibits securities carried for the account of customers from being hypothecated or subjected to any lien or liens of pledgees for an amount in excess of the aggregate indebtedness (as that term is used in SEA Rules 8c-1 and 15c2-1) of all customers.

Other broker-dealers’ accounts are “customer” accounts under SEA Rules 8c-1 and 15c2-1 and are “non-customer” accounts under SEA Rule 15c3-3.

(SEC Release NYSE Interpretation Memo 2690, November 15, 1940) (NYSE Interpretation Memo 88-1, February 1988)

However, if the prime broker disaffirms the trade, the executing broker must treat the account as its own customer.

(SEC Letter to SIA, January 24, 1994) (NYSE Interpretation Memo 94-5, May 1994)

Fails to deliver and fails to receive with a parent or affiliate who is also a broker-dealer (may be foreign or domestic) are treated according to interpretation SEA Rule 15c3-3a/08 (Exhibit A) (Allocation Chart). These transactions are also subject to paragraph (d) of SEA Rule 15c3-3 and subparagraph (c)(2)(ix) of SEA Rule 15c3-1.

Affiliated entities are not per se a “non-customer” unless the affiliated entity is a broker-dealer or excluded by definition. It is the nature of the account or the transaction as a security account or security transaction which will determine the status of the entity under SEA Rule 15c3-3. Non-securities related transactions should not be recorded in the customer account ledgers.

(SEC Letter to Mesirow Financial Corp., July 13, 1987)
(NYSE Interpretation Memo 88-5) (NYSE Interpretation Memo 94-5, May 1994)
(SEC Staff to NYSE) (NYSE Interpretation Memo 02-7, August 2002)

(SEC Staff to NYSE) (NYSE Interpretation Memo 07-4, April 2007)

(SEC Release 34-9922, January 2, 1973)

(SEC Staff to NYSE) (NYSE Interpretation Memo 88-1, February 1988)

(SEC Letter to NYSE, July 16, 1974)

1. The Certificates of Deposit is with a non-affiliated bank as defined under SEA Rule 15c3-3(a)(7) and the account is established in accordance with the requirements of SEA Rules 15c3-3(e) and (f);
2. The Certificates of Deposit are subject to withdrawal at any time pursuant to the requirements of Regulation Q of the Federal Reserve System and are valued for an amount equal to the deposit less any applicable early withdrawal penalty; and
3. The broker-dealer excludes Certificates of Deposit with any one non-affiliated bank to the extent that the total amount deposited exceeds 15% of the bank’s equity capital as reported by the bank in its most recent Call Report or any successor form the bank is required to file by its appropriate Federal banking agency (as defined by section 3 of the Federal Deposit Insurance Act (12 U.S.C. 183)).

Certificates of Deposit maintained at an affiliated bank of the broker-dealer are treated as non-qualified deposits under SEA Rule 15c3-3(e).

Note: See interpretation 15c3-3(a)(6)/0121 (Certificates of Deposit in Reserve Bank Accounts – Aggregation of Deposits for Concentration Calculation).

(SEC Staff to NYSE) (NYSE Interpretation Memo 83-1, January 1983) (NYSE Interpretation Memo 88-1, February 1988)
(SEC Staff to NYSE) (NYSE Interpretation Memo 03-2, March 2003)
(SEC Staff to FINRA) (FINRA Regulatory Notice 15-25)

Note: See interpretations 15c3-3(e)(1)/010 (Money Market Deposits in Reserve Bank Accounts – Aggregation of Deposits for Concentration Calculation), 15c3-3(e)(1)/012 (Time Deposits in Reserve Bank Accounts – Aggregation of Deposits for Concentration Calculation) and 15c3-3(e)(5)/01 (Cash Deposits in Reserve Bank Accounts – Aggregation of Deposits for Concentration Calculation).

(SEC Staff to NYSE) (NYSE Interpretation Memo 05-2, January 2005)
(SEC Staff to FINRA) (FINRA Regulatory Notice 15-25)

There should be a reduction to the value of the securities by 6% if the securities mature longer than one year.

The stripped securities may represent principal and/or interest obligations.

Callable interest obligation stripped U.S. Government securities are not qualified for deposit into Reserve Bank Accounts (see interpretation 15c3-3(a)(6)/04).

(SEC Staff to NYSE) (NYSE Interpretation Memo 92-13, December 1992)
(SEC Staff to NYSE) (NYSE Interpretation Memo 02-7, August 2002)

(SEC Staff to NYSE) (NYSE Interpretation Memo 03-3, April 2003)

Government-Sponsored Enterprises - Issues

• Bank for Cooperatives
• Federal Intermediate Credit Banks
• Federal Land Banks
• Federal Farm Credit Consolidated Systemwide Bonds and Discount Notes

• Consolidated Bonds, Discount Notes and Eurodollar Consolidated Bonds (Foreign Targeted Issue)

• Long Term Notes

• All issues except Mortgage-Backed Bonds which are guaranteed indirectly through GNMA

• All issues except Mortgage-Backed Bonds which are guaranteed indirectly through GNMA

• All issues

• Bonds

International Institutions - Issues

• All issues

• All issues

• All issues

• All issues

(SEC Staff to NYSE) (NYSE Interpretation Memo 88-1, February 1988)

While they may be secured by mortgage-backed securities that are issued or guaranteed by the United States, they are separate securities neither issued nor guaranteed by the United States.

(SEC Letter to Marcotte Hume & Associates, Inc., June 29, 1988) (NYSE Interpretation Memo 89-7, June 1989)

(SEC Staff to NYSE) (NYSE Interpretation Memo 02-7, August 2002)

(SEC Staff to NYSE) (NYSE Interpretation Memo 03-2, March 2003)

(SEC Staff to NYSE) (NYSE Interpretation Memo 91-9, July 1991)

1. A written non-conforming subordination agreement exists between the broker-dealer carrying the account (the “Carrying Broker-Dealer”) and the entity subordinating the account (the “Subordinating Entity”), which subordinates claims for cash and securities in the account to the claims of all customers of the Carrying Broker-Dealer;
2. The non-conforming subordination agreement is signed by a duly authorized officer of the Carrying Broker-Dealer and the Subordinating Entity;
3. The non-conforming subordination agreement includes representations by the Subordinating Entity that the account: (i) does not give rise to a customer claim under the Securities Investor Protection Act of 1970 (“SIPA”) or the U.S. Bankruptcy Code; and (ii) does not contain assets of any person other than the Subordinating Entity;
4. The Subordinating Entity obtains a written opinion of outside counsel that it is legally authorized to make the subordination in the non-conforming subordination agreement; and
5. The non-conforming subordination agreement has been approved by the broker-dealer’s Designated Examining Authority.

Note: Under SIPA, customers are a class of creditor. By subordinating to all customers, the subordinating entity is subordinating to the “any” portion of “any or all creditors” in the exclusion from the term “customer” set forth in the SIPA definition under 15 U.S.C. §78lll(2) and therefore does not have a customer claim in a SIPA proceeding.

(SEC Staff to FINRA) (FINRA Regulatory Notice 15-25)

The term “PAB account” includes the proprietary securities account, as well as the clearing deposit account, of both introducing broker-dealers (piggyback firm and intermediary firm) in a piggyback carrying arrangement.

Note: See interpretation 15c3-1(c)(2)(iv)(E)/027 (Piggyback Carrying Arrangements).

(SEC Staff to FINRA) (FINRA Regulatory Notice 15-25)

(SEC Release 34-9922, January 2, 1973)

(SEC Staff to NYSE) (NYSE Interpretation Memo 89-7, June 1989)
(SEC Staff to FINRA) (FINRA Regulatory Notice 15-25)

(SEC Staff to NYSE) (NYSE Interpretation Memo 88-1, February 1988)

(SEC Staff to NYSE) (NYSE Interpretation Memo 92-3, January 1992)

It should be noted, however, that a broker-dealer must exercise due diligence to promptly obtain possession or control of fully paid and excess margin securities, including the taking of other steps prescribed by the rule for reducing or eliminating any deficiency.

(SEC Release 34-9922, January 2, 1973)

(SEC Letter to Goldman, Sachs & Co., September 21, 1973)

(SEC Staff to NYSE) (NYSE Interpretation Memo 88-1, February 1988)

(SEC Release 34-9922, January 2, 1973)
(SEC Letter to John Muir & Co., December 15, 1980) (NYSE Interpretation Memo 81-9, February 1981)

(SEC Staff to NYSE) (NYSE Interpretation Memo 94-5, May 1995)

(SEC Letter to NYSE, February 28, 1986) (NYSE Interpretation Memo 86-3, March 1986)

A broker-dealer using a segregation allocation management system (“SAMS”) to eliminate a possession or control requirement deficit and/or create an excess in a given security by the re-selection of securities designated for segregation in a customer's margin account must satisfy the following conditions:

• The re-selection of securities cannot create or increase a deficit in another security.
• A verifiable, daily detailed audit trail is maintained which reconciles the excess/deficit quantity as computed and reported from the prior day’s stock record to the excess/deficit quantity after the segregation substitution.
• The detailed description of the procedures the broker-dealer maintains to comply with the requirements of SEA Rule 15c3-3(d)(5) describes the approximate time of substitution and the audit trail reconciling the excess/deficit quantity after segregation substitution to the prior day’s stock record.

Under a SAMS program, a delivery may not be effected when a security is in deficit, even if the deficit would not be increased because a release is effected by a substitution through the program and an equal number of shares are delivered. Same day turnaround privileges only apply to situations where there are actual receipts of securities from the settlement of transactions.

The above audit trail requirements are not required when segregation re-selection is done at the end of the business day and any segregation instructions generated by the SAMS program are included in that day’s stock record and are thereby considered in the excess/deficit quantities calculated from that day's stock record.

(SEC Staff to NYSE) (NYSE Interpretation Memo 95-3, May 1995)
(SEC Staff to FINRA) (FINRA Regulatory Notice 15-25)

Broker-dealers effectuating deliveries through branch offices need not have the branch check an excess/deficit listing prior to making deliveries provided:

• Securities are not released from possession and control prior to the time limits established in SEC Release 34-9922 (see interpretation 15c3-3(d)(1)/01);
• Securities cease to be in possession and control for purposes of SEA Rule 15c3-3 when placed in transit; and
• No deliveries are made to a branch office if as of the close of business the previous day an excess did not exist in that security and such delivery does not exceed any excess that did exist.

(SEC Letter to Blyth, Eastman Dillon, June 5, 1974)

When the redemption has not been completed within 30 days, the market value of the securities shall be included as a credit at Item 6 of the Reserve Formula computation and treated similarly to short stock dividends and distributions until the redemption is accomplished.

(SEC Staff to NYSE) (NYSE Interpretation Memo 90-11, December 1990)

(SEC Staff to NYSE) (NYSE Interpretation Memo 91-5, June 1991)

(SEC Staff to NYSE) (NYSE Interpretation Memo 92-13, December 1992)

(SEC Staff to NYSE) (NYSE Interpretation Memo 92-13, December 1992)

(NYSE Interpretation Memo 03-4, May 2003)

(NYSE Interpretation Memo 03-4, May 2003)

(NYSE Interpretation Memo 03-4, May 2003)

1. “Government securities” as defined in Section 3(a)(42)(A) and (B) of the Exchange Act may be pledged when borrowing any securities.
2. “Government securities” as defined in Section 3(a)(42)(C) of the Exchange Act issued or guaranteed as to principal or interest by the following corporations may be pledged when borrowing any securities: (i) the Federal Home Loan Mortgage Corporation, (ii) the Federal National Mortgage Association, (iii) the Student Loan Marketing Association, and (iv) the Financing Corporation.
3. Securities issued by, or guaranteed as to principal and interest by, the following Multilateral Development Banks - the obligations of which are backed by the participating countries, including the U.S. - may be pledged when borrowing any securities: (i) the International Bank for Reconstruction and Development, (ii) the Inter-American Development Bank, (iii) the Asian Development Bank, (iv) the African Development Bank, (v) the European Bank for Reconstruction and Development, and (vi) the International Finance Corporation.
4. Mortgage-backed securities meeting the definition of a “mortgage related security” set forth in Section 3(a)(41) of the Exchange Act may be pledged when borrowing any securities.
5. Negotiable certificates of deposit and bankers acceptances issued by a “bank” as that term is defined in Section 3(a)(6) of the Exchange Act, and which are payable in the United States and deemed to have a “ready market” as that term is defined in 17 CFR 240.15c3-1 (see interpretation Rule 15c3-1(c)(2)(vii)/09), may be pledged when borrowing any securities.
6. Foreign sovereign debt securities may be pledged when borrowing any securities, provided that, (i) at least one nationally recognized statistical rating organization (“NRSRO”) has rated in one of its two highest rating categories either the issue, the issuer or guarantor, or other outstanding unsecured long-term debt securities issued or guaranteed by the issuer or guarantor; and (ii) if the securities pledged are denominated in a different currency than those borrowed, the broker-dealer shall provide collateral in an amount that exceeds the minimum collateralization requirement in paragraph (b)(3) of SEA Rule 15c3-3 (100%) by 1% when the collateral is denominated in the Euro, British pound, Swiss franc, Canadian dollar or Japanese yen, or by 5% when it is denominated in another currency.
7. Foreign sovereign debt securities that do not meet the NRSRO rating condition set forth in Item 6 above may be pledged only when borrowing non-equity securities issued by a person organized or incorporated in the same jurisdiction (including other debt securities issued by the foreign sovereign); provided that, if such foreign sovereign debt securities have been assigned a rating lower than the securities borrowed, such foreign sovereign debt securities must be rated in one of the four highest rating categories by at least one NRSRO. If the securities pledged are denominated in a different currency than those borrowed, the broker-dealer shall provide collateral in an amount that exceeds the minimum collateralization requirement in paragraph (b)(3) of SEA Rule 15c3-3 by 1% when the collateral is denominated in the Euro, British pound, Swiss franc, Canadian dollar or Japanese yen, or by 5% when it is denominated in another currency.
8. The Euro, British pound, Swiss franc, Canadian dollar or Japanese yen may be pledged when borrowing any securities, provided that, when the securities borrowed are denominated in a different currency than that pledged, the broker-dealer shall provide collateral in an amount that exceeds the minimum collateralization requirement in paragraph (b)(3) of SEA Rule 15c3-3 by 1%. Any other foreign currency may be pledged when borrowing any non-equity securities denominated in the same currency.
9. Non-governmental debt securities may be pledged when borrowing any securities, provided that, in the relevant cash market they are not traded flat or in default as to principal or interest, and are rated in one of the two highest rating categories by at least one NRSRO. If such securities are not denominated in U.S. dollars or in the currency of the securities being borrowed, the broker-dealer shall provide collateral in an amount that exceeds the minimum collateralization requirement in paragraph (b)(3) of Rule 15c3-3 by 1% when the securities pledged are denominated in the Euro, British pound, Swiss franc, Canadian dollar or Japanese yen, or by 5% when they are denominated in any other currency.

The categories of permissible collateral identified above do not include securities that (i) have no principal component, or (ii) accrue interest at the time of the pledge at a stated rate equal to or greater than 100% per annum (expressed as a percentage of the actual principal amount of the security).

Broker-dealers pledging any of the securities set forth above must, in addition to satisfying the notice requirements already contained in paragraph (b)(3) of Rule 15c3-3, include in the written agreement with the customer a notice that some of the securities being provided by the borrower as collateral under the agreement may not be guaranteed by the United States.

(SEA Release 34-47683, April 16, 2003) (NYSE Interpretation Memo 03-4, May 2003)

(SEC Staff to NYSE) (NYSE Interpretation Memo 03-4, May 2003)

Note: 17 CFR 403.1 and 403.4(e) are Treasury Regulations that incorporate and/or modify SEA Rules 8c-1, 15c2-1, 15c3-2 and 15c3-3.

(Department of Treasury Letter to NYSE, August 2, 1990) (NYSE Interpretation Memo 90-8, September 1990)

(SEC Letter to The First Boston Corporation, June 17, 1988) (NYSE Interpretation Memo 89-7, June 1989)

(SEC Letter to PSA, January 4, 1990) (NYSE Interpretation Memo 90-11, December 1990)

(SEC Letter to CBOE, February 11, 1975)

(NYSE Interpretation Memo 04-3, June 2004)

However, where a customer writes a call option, the proceeds of his writing transaction are included in the “customer” account at OCC. The broker or dealer will be required to deposit additional margin to secure the customer’s writing obligation, and to this extent, fully-paid or excess margin securities held by the broker or dealer to margin such customer’s writing obligations, may be used to the extent of 140% of the amount derived by adding to the customer’s net debit balance the amount of margin required by OCC from the clearing member or the amount of margin required by the broker or dealer’s Designated Examining Authority. Customers’ securities with a market value in excess of 140% of that amount must be maintained in the possession or control of the broker or dealer.

(SEC Letter to CBOE, February 11, 1975) (SEC Staff to NYSE) (NYSE Interpretation Memo 04-3, June 2004)

(SEC Staff to NYSE) (NYSE Interpretation Memo 83-2, April 1983)

(SEC Letter to CBOE, March 14, 1975)

1. The account contains only customers securities and is carried free of any lien or payment;
2. The fund is currently registered with the Commission pursuant to the Investment Company Act of 1940;
3. The broker-dealer carries the shares of investment companies “long” in the appropriate customer account;
4. The broker-dealer reflects separately for the securities of each fund all positions in their securities records or ledgers maintained pursuant to SEA Rule 17a-3 under the Securities Exchange Act;
5. The broker-dealer does not use the investment company shares in one customer’s account, which are not required, to satisfy the possession or control obligations related to other customers; and
6. The broker-dealer must not be aware of any substantial problems of an operational nature which the fund may be experiencing and which may endanger the securities of the customer.

(SEC Letter to NYSE, January 28, 1986) (NYSE Interpretation Memo 86-8, August 1986)

Broker-dealers should notify their Designated Examining Authority of mutual fund companies which do not respond to a request for acknowledgment letters.

(SEC Staff to NYSE) (NYSE Interpretation Memo 92-13, December 1992)

(SEC Staff to NYSE) (NYSE Interpretation Memo 86-8, August 1986)

When participants of NSCC’s Stock Borrow Program determines that a deficiency exists in the amount required to be in possession or control due to a recalculation of the requirement and the borrowing by NSCC, such borrowed amount may be considered as if in its possession or control, provided:

• The participant, in a timely manner on the day following the night cycle creation of the deficit, instructs NSCC to convert (and NSCC accomplishes same by 3:00 p.m. settlement) its “long valued position” into a “long free position”, and
• No additional securities of the same class and issue are made available to be borrowed at the same time that securities are owed by NSCC via this “long free account”.

To clarify the criteria outlined above, the positions in the Long Free Account may be considered to be in the possession or control of the broker-dealer for a period not exceeding 14 calendar days from the initial establishment of the “long free position”.

(SEC Letter to NSCC, August 3, 1981) (NYSE Interpretation Memo 88-6, April 1988)
(SEC Letter to NSCC, May 10, 1984) (NYSE Interpretation Memo 92-13, December 1992)

(SEC Staff to NYSE) (NYSE Interpretation Memo 91-5, April 1991)

1. The deficit results from a delivery to settle a pending delivery obligation arising from an uncompleted sales transaction (not for bank loan or stock loan);
2. The participant, in a timely manner on the day following the night cycle creation of the deficit instructs NSCC to convert (and NSCC accomplishes same by 3:00 p.m. settlement) its “long valued position” into a “long free position”; and
3. Deficits attributable to bank loan must be recalled and effected within one business day instead of two.

(SEC Letter to NSCC, June 28, 1985) (NYSE Interpretation Memo 88-6, April 1988)

(SEC Letter to Pacific Securities Depository Trust Company, July 29, 1986)
(NYSE Interpretation Memo 88-6, April 1988)

The receipt for transfer items signed by the Vancouver Stock Exchange for items sent by a securities industry depository company for redelivery to Canadian transfer agents does not satisfy the requirements of SEA Rule 15c3-3(c)(3).

The written statement of acknowledgment must be issued by the issuer or the transfer agent.

The SEC has no agreement with the government of Canada or any of its Provinces regarding transfer agents.

(SEC Letter to Pacific Securities Depository Trust Company, July 29, 1986)
(NYSE Interpretation Memo 88-6, April 1988)

(SEC Staff to NYSE) (NYSE Interpretation Memo 92-13, December 1992)

1. The broker-dealer whose customers' securities are lodged abroad, applies to the SEC and has not had his application rejected within 90 days of the SEC’s receipt of the application;
2. Such securities are not subject to any right, charge, security interest, lien or claim of any kind in favor of the foreign entity except for their safe custody or administration; and
3. Beneficial ownership of such securities is freely transferable without the payment of money or value other than for safe custody or administration (where it is the practice in foreign countries for the foreign entity to maintain a lien, claim, or other charge on customers’ foreign securities for custody and administration charges, it is the broker-dealer's responsibility to pay charges, claims, etc., promptly and to be certain that the amount of such charges, claims, etc., remain at all times minimal).

(SEC Release 34-10429, October 12, 1973)

(SEC Letter to Bowman & Co., December 13, 1985) (NYSE Interpretation Memo 86-8, August 1986)

Where a broker-dealer is holding divided interests in jumbo certificates of deposit for its customers the certificates will not be considered to be in a good control location unless:

• The jumbo certificate is issued in the broker’s name and is in the possession of the broker-dealer, or
• If the deposit is held in an account by the bank, the account must be in the name of the broker-dealer and the bank must have acknowledged to the broker-dealer in writing that the deposit is being held for the benefit of customers of the broker-dealer and is not subject to any right, charge, security interest, lien or claim of any kind in favor of the bank or any person claiming through the bank.

A balanced stock record position should be maintained for each CD describing the certificate and detailing the interests of each customer.

A savings and loan association may be treated as a good control location for this specific interpretation if the pooled certificates of deposit are handled in the manner specified.

(SEC Letter to Hunton & Williams, September 22, 1988) (NYSE Interpretation Memo 92-13, December 1992)

(SEC Letter to Olde & Co., Inc., May 26, 1986) (NYSE Interpretation Memo 88-1, February 1988)
(SEC Staff to NYSE) (NYSE Interpretation Memo 92-13, December 1992)

(SEC Staff to NYSE) (NYSE Interpretation Memo 90-11, December 1990)

(SEC Release 34-9922, January 2, 1973)

1. The broker-dealer whose customers’ securities are being carried elsewhere, applies to the SEC and has not had his application rejected within 90 days of the SEC’s receipt of the application;
2. The securities are carried by the carrying broker-dealer in an account to be designated as a “Special Custody Account for the Exclusive Benefit of Customers of (name of the broker-dealer)” pursuant to SEA Rule 15c3-3(c)(7);
3. The account contains only the securities of customers of that particular broker-dealer; and
4. The particular broker-dealer for whose customers those securities are carried instructs the carrying broker- dealer to maintain physical possession or control of such securities free of any charge, lien, or claim of any kind in favor of the carrying broker-dealer.

Additionally, security transactions may not be effected through the account; its purpose being exclusively for the custody of customers’ foreign securities. The carrying broker or dealer must also comply with the conditions set forth in interpretation 15c3-3(c)(4)/01.

(SEC Release 34-10429, October 12, 1973)

A broker-dealer who wishes to utilize the facilities of another broker-dealer for accommodation transfers shall obtain a statement from the broker-dealer effecting such transfers which shall provide that accommodation transfers shall be carried by the carrying broker-dealer in an account designated as a “Special Custody Account for Accommodation Transfers for the Exclusive Benefit of Customers of (name of purchasing Broker-Dealer)”. The Account shall contain only the securities of customers of that particular broker-dealer in transfer, or pending transfer. The broker-dealer carrying the Account shall not effect security transactions through such Account, its purpose being exclusively for carrying securities being transferred for the customers of the purchasing broker-dealer. The broker-dealer carrying the Account shall agree that securities carried in such Account shall be free of any charge, lien or claim of any kind in favor of such carrying broker-dealer.

Additionally, the carrying broker-dealer shall undertake to comply fully with all aspects of SEA Rule 15c3-3 with respect to the Account (see interpretation15c3-3(a)(1)/01).

The SEC would consider that such accounts be treated as control locations for purposes of SEA Rule 15c3-3(c)(7) upon an appropriate application to the SEC by the carrying broker-dealer (see interpretations 15c3-3a(Item 4)/02 (Exhibit A) and 15c3-3(c)(7)/03).

(SEC Letter to NASD, July 15, 1974)

Application should be in form of letter as follows:

Re: Exchange Act Release No. 11102

Dear Mr. Macchiaroli:

In accordance with the captioned Release, please be advised that (name of accommodating broker i.e. your firm), a registered broker-dealer pursuant to Section 15 of the Securities Exchange Act of 1934, intends to establish an account designated “Special Custody Account for Accommodation Transfers for the Exclusive Benefit of Customers of (Name of accommodated firm)” (“Account”). (Name of accommodated firm) (“Broker”), is a registered broker-dealer pursuant to Section 15 of the Securities Exchange Act of 1934 with principal offices at (Address of accommodated firm).

1. (Name of your firm) will provide BROKER with a statement specifying all long positions carried by (name of your firm) in such ACCOUNT.
2. That ACCOUNT will contain only the securities of BROKER’S customers.
3. (Name of your firm) will not effect security transactions through such ACCOUNT.
4. The securities in the ACCOUNT will be free of any charge, lien or claim in favor of (name of your firm).
5. (Name of your firm) will undertake to comply fully with all aspects of SEA Rule 15c3-3 with respect to the ACCOUNT.

It is respectfully requested, in accordance with the captioned Release, that the Director of the Division of Market Regulation consider the representations made herein and designate the ACCOUNT that is to be established in accordance with these representations as a control location, as that term is defined in SEA Rule 15c3-3.

If there is any further information needed in connection with this request, kindly contact the undersigned at ____________________.

(SEC to Midwest Stock Exchange, Inc., May 4, 1977) (NYSE Interpretation Memo 78-1, May 1978)

Ordinarily the SEC will only approve locations, not specifically described in the rule as good control locations, on a case by case basis upon application. However, in the case of money market funds where the fund or its agent carries the security in an account for a broker or dealer, the SEC has stated,

(SEC Letter to NYSE, December 13, 1979)

1. The limited partnership was registered with the Commission pursuant to Securities Act of 1933;
2. The broker-dealer carries the investment “long” in customers’ accounts;
3. All securities positions of each limited partnership are reflected separately in securities records or ledgers maintained pursuant to SEA Rule 17a-3; and
4. The broker-dealer is not aware of any substantial problems of an operational nature which the partnership may be experiencing or which may endanger the interests of the customer.

(SEC Letter to Wayne Hummer & Co., March 6, 1986) (NYSE Interpretation Memo 86-8, August 1986)

1. The limited partnership units are exempt from registration, or not required to be registered;
2. The broker-dealer carries the investment “long” in customers’ accounts;
3. All securities positions of each limited partnership are reflected separately in securities records or ledgers maintained pursuant to SEA Rule 17a-3;
4. The broker-dealer is not aware of any substantial problems of an operational nature which the partnership may be experiencing and which may endanger the interests of the customer;
5. The broker-dealer will obtain written assurances that limited partnership interests are not subject to any right, charge, security interest, lien, or claim of any kind in favor of the general partner or any person claiming through the general partner; and
6. The broker-dealer will maintain in a separate file a current list of all private partnerships of which limited partner interests will be carried on its books and records subject to the terms and conditions set forth. The list will contain the name of the contact person, telephone number, and address for each partnership.

(SEC Letter to Wilmer, Cutler & Pickering, July 30, 1997) (NYSE Interpretation Memo 98-5, May 1998)

1. The books and records of the receiving broker-dealer reflect the customer securities positions and money balances previously held by the delivering broker-dealer;
2. The books and records of the receiving broker-dealer reflect that the customer securities not yet transferred to it are “located” in the omnibus account at the delivering broker-dealer;
3. The receiving broker-dealer assumes the responsibility to clear all transactions in the customer accounts being transferred;
4. The delivering broker-dealer provides the receiving broker-dealer with written assurance that: (i) for purposes of SEA Rule 15c3-3, it will treat the omnibus account as a customer account and the customer securities maintained in the omnibus account as fully-paid securities; and (ii) it will promptly deliver the securities to the receiving broker-dealer; and
5. The receiving broker-dealer makes written application to the Commission to have the omnibus account designated as a control location and represents in the application that each of the above listed requirements will be complied with.

When the omnibus account ceases to be a control location, the receiving broker-dealer must include the market value of all customer securities not yet delivered to it in its reserve formula computation as a “failed to receive” credit item, whether or not it has any money credits related to the particular securities and must initiate action to buy-in the securities not yet delivered.

(SEC Letter to NYSE, December 5, 1988) (NYSE Interpretation Memo 89-7, June 1989)

1. The delivery to the broker-dealer of certificates representing ownership of the commercial paper does not require the payment of money or value, and the issuer has acknowledged in writing that all commercial paper it holds for the broker-dealer is for the exclusive benefit of the broker-dealer’s customers and is not subject to any right, charge, security interest, lien, or claim of any kind in favor of the issuer or any person claiming through the issuer;
2. The commercial paper has a maturity at the time of issuance not exceeding nine months, exclusive of days of grace (the maturity of any renewal thereof is likewise limited);
3. Either the commercial paper is rated in one of the three highest categories by at least two of the nationally recognized statistical rating organizations or other commercial paper issued by the issuer is so rated;
4. The broker-dealer carries the commercial paper “long” in the appropriate customer account;
5. The broker-dealer reflects the commercial paper of each issuer separately in its securities books and records maintained pursuant to SEA Rule 17a-3 and includes the commercial paper in its quarterly count made pursuant to SEA Rule 17a-13; and
6. The broker-dealer is not aware of any substantial problem, either of an operational or a financial nature, the issuer may be experiencing that could endanger the commercial paper of its customers.

Case by case approval for each location will not be required for book entry commercial paper where all the above circumstances are present.

(SEC Letter to NYSE, September 5, 1989) (NYSE Interpretation Memo 89-11, October 1989)

1. The issuer or its registered transfer agent has acknowledged in writing that all dividend shares it holds for the broker-dealer are for the exclusive benefit of the broker-dealer’s customers and are not subject to any right, charge, security interest, lien, or claim of any kind in favor of the issuer or any person claiming through the issuer;
2. The broker-dealer carries the dividend shares as well as the fractional shares long in the appropriate customer account;
3. The broker-dealer reflects the dividend shares of each issuer separately on its books and records maintained pursuant to SEA Rule 17a-3 and includes the book-entry dividend shares in its quarterly count made pursuant to SEA Rule 17a-13; and
4. The broker-dealer is not aware of any substantial problem of a operational nature that would preclude the issuer or its registered transfer agent from delivering the securities.

(SEC Staff to NYSE) (NYSE Interpretation Memo 98-5, May 1998)

1. In the case of purchases of securities by customers; on or before the business day following settlement date or the business day following actual date of receipt of payment whichever is later.
2. In the case of sales of securities by customers; not earlier than the morning of business on settlement date minus one business day, which is deemed to allow adequate time for processing securities for pending deliveries. However, such securities cannot be used for securities loans or bank loans.

A deficiency in a given security required for possession or control may be eliminated by revising the selection of securities in margin accounts (market value not in excess of 140% of the total of the debit balance in the customer’s account or accounts) representing collateral for customers' indebtedness. In every instance where a determination as to which securities within the permissible limits constitute margin securities and which securities constitute excess margin securities of customers has been made or revised, it should be clearly reflected in the records of the broker-dealer.

(SEC Release 34-9922, January 2, 1973; Amended August 1994)
(SEC Staff to NYSE) (NYSE Interpretation Memo 95-3, May 1995)
(SEC Staff to FINRA) (FINRA Regulatory Notice 18-03)

(SEC Staff to NYSE) (NYSE Interpretation Memo 92-13, December 1992)

The deficiency or excess of securities required for possession or control must be determined on a daily basis as of the close of business on the preceding day. A separate record or listing must include the status of those securities which have either an excess or a deficit. For securities which are neither in excess or deficit, books and records must be available to verify that status.

For securities in deficit, action must be taken (if required by the rule) no later than the business day following the day on which the deficiency determination is made.

Securities needed for possession or control may be borrowed from another broker-dealer or from others rather than recall a security loaned, withdraw bank loan collateral or buy-in a dividend receivable. Securities may not be borrowed in lieu of other buy-in requirements in the rule such as fails to receive in excess of 30 days, short security differences and short in customer accounts in excess of 10 business days (paragraph (m)). If instructions shall have been issued for the recall of a security loaned or for the withdrawal of collateral securities in a bank loan, deliveries of that security may be made to the extent that completion of such recall would create an excess, provided the security recalled is returned within two business days following the date of issuance of the instructions in the case of collateral securities in a bank loan within five business days following the date of issuance of instructions in the case of securities loaned.

Note that the borrowing of securities for the purpose of their hypothecation in bank loan is not stated as a permissible activity at 220.16 of Regulation T of The Board of Governors of the Federal Reserve System.

(SEC Release NYSE Interpretation Memo 34-9922, January 2, 1973)

Where less than a full unit of trading is required to be in possession or control, no action pursuant to paragraph (d) of the rule will be required and delivery of trading units will not be precluded if a deficiency of less than a trading unit will result.

However, while broker-dealers may pledge margin securities in units of trading without reference to the requirement to reduce to possession or control quantities of less than a trading unit, where such excess is material or substantial a broker-dealer should take appropriate corrective action.

Note: SEC Release No. 9922 permits a broker-dealer to revise his selection of securities in margin accounts representing collateral for customers' margin indebtedness.

(SEC letter to NASD, July 16, 1974)

A broker-dealer that uses a specific identification system to satisfy possession and control requirements, need not take action to obtain securities that are in non-control locations other than the location in which a customer's fully-paid or excess margin securities are specifically located.

The broker need not remove the securities from bank loan if he is on a specific identification system, since the customer's securities are in fail to receive (for less than 30 days).

(SEC letter to Sade & Co., March 29, 1973)

With reference to the example cited in interpretation 15c3-3(d)(1)/04 above or similar situations, if the broker-dealer is using an allocation system the securities must be recalled from bank loan or stock loan as required under SEA Rule 15c3-3(d)(1). Only the locations described under SEA Rule 15c3-3(c) are good possession or control locations.

The fact that time is allowed before action must be taken when securities are located in failed to receive or elsewhere does not make it a good control location.

(SEC Staff to NYSE)

(SEC Release 34-9856, November 10, 1972)

When customers’ fully paid or excess margin securities (other than those indicated under interpretation 15c3-3(d)(1)/07) allocate to a customer, non-customer or proprietary short position, the short market value is includible as a credit in the customer reserve formula computation.

In any case, a deficit may not be created or increased by delivery on a short sale and prompt steps must be taken to bring the security into possession or control.

Note: See SEA Rule 15c3-3(d)(4) for possession or control requirements.

(SEC Staff to NYSE) ( NYSE Interpretation Memo 78-1, May 1978) (NYSE Interpretation Memo 88-10, June 1988)
(SEC Staff to FINRA) (FINRA Regulatory Notice 15-25)

1. Shall not be allocated against short positions in customer, non-customer or proprietary accounts;
2. Shall be promptly obtained and maintained in physical possession or control, through borrowing or otherwise (failure results in a violation of SEA Rule 15c3-3(b)(1)); and
3. The market value of securities not held in possession or control shall be included as a credit in the formula.

In addition, a purchasing broker-dealer cannot designate another broker-dealer who issues a short sale confirmation as a control location unless such seller is committed in a custody agreement to borrow and set aside the securities for the benefit of the purchasing broker-dealer’s customers.

(SEC Staff to NYSE) (NYSE Interpretation Memo 88-4, March 1988) (NYSE Interpretation Memo 88-10, June 1988)

(SEC Staff to NYSE) (NYSE Interpretation Memo 78-1, May 1978)

1. Identify fully paid and excess margin securities;
2. Identify fully paid and excess margin securities which are in his physical possession or control;
3. Determine any deficiency of fully paid or excess margin securities which are not in his physical possession or control;
4. Determine the location of fully paid and excess margin securities which are not in physical possession or control; and
5. Record any action taken to reduce fully paid and excess margin securities to physical possession or control or to locations designated by paragraph (c) of the rule when paragraphs (d) or (m) of the rule requires that specified action be taken.

Thus, a separate record or listing as set forth in Release No. 9922 may not be necessary for some broker-dealers who can comply with the rule’s provisions if the records outlined above or those maintained by him readily enable a broker or dealer (a) to issue instructions to acquire physical possession or control of fully paid or excess margin securities within the time frames set forth in SEA Rule 15c3-3 or (b) to determine the amount of any excess or deficiency of fully paid and excess margin securities either in or required to be in physical possession or control and the location of any such securities in deficiency, daily as of the close of business on the preceding day. Where a separate listing must be maintained, such listing must include any deficiency or excess of fully paid for and excess margin securities as determined from records, which should meet criteria (1) through (5) above.

(SEC to Troster, Singer & Co., January 21, 1975) (NYSE Interpretation Memo 78-1, May 1978)

(SEC staff to NYSE) (NYSE Interpretation Memo 85-12, December 1985)

Securities needed for possession or control which are recalled from securities loaned cannot be converted to failed to receive if not returned within five business days and the required buy-in action must be initiated.

Broker-dealers may want to set up such securities loaned buy-ins in a separate account in order to separate such items from securities loaned locations for which no action is required.

Note: Broker-dealers may, however, borrow securities on day 6 in order to satisfy a deficit condition where securities loaned recall has not been returned within the time frames prescribed by the rule.

(SEC Staff to NYSE) (NYSE Interpretation Memo 78-1, May 1978)

1. The lender’s records indicate that a deficit exists in a security with an outstanding stock loan (Deficit Determination Day). The lender must attempt to borrow securities to fulfill its possession or control requirement.
2. No later than 11:30 a.m. NYT on the next business day following the Deficit Determination Day (Notification Day (“N”)) the lender, if unsuccessful in its borrow attempt, must send notification to the original borrower that the securities loaned must be returned. The recall notice shall state that, after 2:30 p.m. NYT on the fifth business day after notification of the recall (“N+5”), the lender will execute a buy-in unless they receive the securities or proof of purchase of securities of like kind.
3. The lender continues to try to borrow securities to cover the deficit (N+1 through N+3).
4. On N+4, if the deficit still exists, the lender must send the borrower a reaffirmed recall notice that states that if the securities are not received by 2:30 p.m. NYT on N+5, the lender will execute a buy-in. If the lender fails to send a reaffirmed recall notice, the borrower may understand that the deficit has been satisfied and that return of the securities is no longer necessary.
5. On N+5 securities loaned that are subject to a recall notice must be received by 2:30 p.m. NYT. If the recalled securities are not received by 2:30 p.m. NYT on N+5, the buy-in must be executed for securities of a like kind and quantity to those originally loaned. However, if a lender receives proof of purchase of securities from the borrower, it shall not execute the buy-in on the fifth business day. If the securities remain undelivered at 2:30 p.m. NYT on the first business day after settlement date indicated in the proof of purchase provided by the borrower, the lender may buy-in the securities (without any further notice of intent to the borrower) in accordance with the established procedures of the principal exchange or market in which the securities are traded.

(SEC Letter to NYSE, February 14, 1994) (NYSE Interpretation Memo 94-5, May 1994)

1. The broker-dealer must establish a separate clearing account at a depository.
2. The broker-dealer must use separate internal securities borrow and loan account numbers to reflect the “conduit” business.
3. The broker-dealer may not commingle customer securities with those in the conduit account, except as described below.
4. Intra-company stock borrows and loans are permissible between the broker-dealer’s conduit book and customer book, provided that the stock record reflects the borrows and loans, and related movements between the customer and conduit businesses. No customer excess securities available to be loaned may be loaned to and accumulated in the broker-dealer’s conduit accounts for potential securities loans. Intra-company borrows and loans may not be used by the broker-dealer to circumvent its possession or control requirements or reserve formula requirements under SEA Rule 15c3-3. When a deficit arises in a security loaned to the conduit, a recall of the securities loaned is required within the time parameters specified in SEA Rule 15c3-3(d)(1)
5. Securities loaned from the conduit book to the customer book may not be returned to the conduit book if such return would create or increase a deficit.
6. After recall by the customer book to the conduit book is made, if a conduit securities loan is returned (“received in”) the broker-dealer first must satisfy the customer recall even though the securities returned to the account originally were borrowed from a broker-dealer or institution and reloaned. If there is a prior recall to the conduit box from another stock lender, that recall may be satisfied before the customer book recall.

(SEC Letter to NYSE, December 21, 1991, NYSE Interpretation Memo 92-2)
(NYSE Interpretation Memo 94-5, May 1994)

(SEC Staff to NYSE) (NYSE Interpretation Memo 78-1, May 1978)

(SEC Staff to NYSE) (NYSE Interpretation Memo 78-1, May 1978)

(SEC Staff NYSE) (NYSE Interpretation Memo 90-11, December 1990)

1. File a written notice with its designated examining authority of its intention to apply this alternative;
2. Thirty days after settlement date, take a proprietary haircut charge for the securities failed to receive or those due from a customer pursuant to SEA Rule 15c3-1, reduced by the equity (or increased by the deficit) in the transaction on a mark-to-market basis. In those countries where settlement is on a seller’s option basis rather than on a customary settlement cycle, the settlement date for the purposes of this alternative will be considered to be a day not more than 30 days from trade date;
3. Maintain in its records a schedule of the current settlement cycle of each country in which it trades; and
4. Maintain and preserve separate records, in whatever form appropriate, detailing, by country, the total number of failed to receive contracts, the total number of long sale transactions with customers when possession of the securities has not been obtained pursuant to paragraph (m) and the total contractual value of those contracts and transactions.

All other no-action letters relating to this subject should be considered withdrawn and may no longer be relied upon.

(SEC Letter to SIA, June 16, 1988) (NYSE Interpretation Memo 88-20, November 1988)

(SEC Letter to J. B. Hanauer, February 22, 1988) (NYSE Interpretation Memo 89-7, June 1989)

When the buy-in of aged fail to receive is necessary to obtain securities require to be held in possession or control, the security must be purchased if the order is executable.

In the event the buy-in order is not executable, other steps must be promptly taken to obtain required possession or control (i.e., borrowing).

(SEC Staff of NYSE) (NYSE Interpretation Memo 89-7, June 1989)

(SEC Staff of DMR to NASD, October 1988)

(SEC Staff to NYSE) (NYSE Interpretation Memo 90-11, December 1990)

When customer’s accounts transferred under the Automated Customer Account Transfer System (ACATS) of NYSE Rule 412(e) contain fully paid securities, the receiving broker-dealer must designate the securities as required to be held in possession or control even though the security may be failing to receive from the delivering broker-dealer. However, where the customer’s long position is identified as related to a NYSE Rule 412(e) (ACATS) fail to receive, the following treatment may apply:

• Where the fail to receive contract has been marked to market the credit balance must be included in Item 4 for the reserve formula computation. The fail to receive, identified as a “412 fail” (as required under NYSE Rule 412 (b)(2)/02), may be treated as if it were a good control location allocating only to the position in the account received for up to the first 10 business days during which the fail is open.
• Fails to receive relating to customer positions which are classified as exempt under NYSE Rule 412(f) (and its interpretations /01 through /05 of the NYSE Interpretation Handbook) for which no cash has been received may be treated as if they are control locations allocating to the customer position in the specific account received for as long as the fail continues to be carried in compliance with NYSE Rule 412 and its interpretations. Where cash or a marked to market contract amount is to be paid upon receipt of the security, such amount must be included as a credit under Item 4 of the reserve formula computation.

Amounts to be received upon delivery of an ACATS failed to deliver item may be included as a debit under Item 12 of the reserve formula computation for 10 business days provided it is carried in compliance with NYSE Rule 412 and the security position does not allocate to a control location.

(SEC Staff to NYSE) (NYSE Interpretation Memo 90-1, February 1990)

(U.S. Treasury Department Release, February 28, 1994)
(SEC Staff to NYSE) (NYSE Interpretation Memo 95-3, May 1995)

(SEC Staff to NYSE)

(SEC Staff to NYSE)

(SEC Staff to NYSE)

(SEC Staff to FINRA) (FINRA Regulatory Notice 15-25)

1. The MMDA deposit is with a non-affiliated bank as defined under SEA Rule 15c3-3(a)(7) and the account is established in accordance with the requirements of SEA Rules 15c3-3(e) and (f); and
2. The broker-dealer excludes MMDA deposits with any one non-affiliated bank to the extent that the total amount deposited exceeds 15% of the bank’s equity capital as reported by the bank in its most recent Call Report or any successor form the bank is required to file by its appropriate Federal banking agency (as defined by section 3 of the Federal Deposit Insurance Act (12 U.S.C. 183)).

MMDA deposits maintained at an affiliated bank of the broker-dealer are treated as non-qualified deposits under SEA Rule 15c3-3(e).

Note: See interpretation 15c3-3(e)(1)/010 (Money Market Deposits in Reserve Bank Accounts – Aggregation of Deposits for Concentration Calculation).

(SEC Staff to NYSE) (NYSE Interpretation Memo 88-1, February 1988)
(SEC Staff to FINRA) (FINRA Regulatory Notice 15-25)

Reserve Bank Accounts (Customer and PAB) maintained at the same non-affiliated bank which contain money market deposits, certificates of deposit, time deposits and cash deposits must be aggregated in determining the total amount deposited when computing the concentration calculation pursuant to interpretation 15c3-3(e)(1)/01.

Note: See interpretations 15c3-3(a)(6)/0121 (Certificates of Deposit in Reserve Bank Accounts – Aggregation of Deposits for Concentration Calculation), 15c3-3(e)(1)/012 (Time Deposits in Reserve Bank Accounts – Aggregation of Deposits for Concentration Calculation) and 15c3-3(e)(5)/01 (Cash Deposits in Reserve Bank Accounts – Aggregation of Deposits for Concentration Calculation).

(SEC Staff to NYSE) (NYSE Interpretation Memo 05-2, January 2005)
(SEC Staff to FINRA) (FINRA Regulatory Notice 15-25)

1. The Time Deposit is with a non-affiliated bank as defined under SEA Rule 15c3-3(a)(7) and the account is established in accordance with the requirements of SEA Rules 15c3-3(e) and (f);
2. The broker-dealer receives a written confirmation from the non-affiliated bank stating the following: (i) the funds are payable upon demand; (ii) the funds are held free of any restrictions; and (iii) if prematurely withdrawn, the funds are subject only to the forfeiture of the interest; and
3. The broker-dealer excludes Time Deposits with any one non-affiliated bank to the extent that the total amount deposited exceeds 15% of the bank’s equity capital as reported by the bank in its most recent Call Report or any successor form the bank is required to file by its appropriate Federal banking agency (as defined by section 3 of the Federal Deposit Insurance Act (12 U.S.C. 183)).

Time Deposits maintained at an affiliated bank of the broker-dealer are treated as non-qualified deposits under SEA Rule 15c3-3(e).

Note: See interpretation 15c3-3(e)(1)/012 (Time Deposits in Reserve Bank Accounts – Aggregation of Deposits for Concentration Calculation).

(SEC Staff to NYSE) (NYSE Interpretation Memo 96-3, April 1996) (NYSE Interpretation Memo 02-7, August 2002) (SEC Staff to NYSE) (NYSE Interpretation Memo 07-4, April 2007)
(SEC Staff to FINRA) (FINRA Regulatory Notice 15-25)

Reserve Bank Accounts (Customer and PAB) maintained at the same non-affiliated bank which contain time deposits, certificates of deposit, money market deposits and cash deposits must be aggregated in determining the total amount deposited when computing the concentration calculation pursuant to interpretation 15c3-3(e)(1)/011.

Note: See interpretations 15c3-3(a)(6)/0121 (Certificates of Deposit in Reserve Bank Accounts – Aggregation of Deposits for Concentration Calculation), 15c3-3(e)(1)/010 (Money Market Deposits in Reserve Bank Accounts – Aggregation of Deposits for Concentration Calculation) and 15c3-3(e)(5)/01 (Cash Deposits in Reserve Bank Accounts – Aggregation of Deposits for Concentration Calculation).

(SEC Staff to NYSE) (NYSE Interpretation Memo 05-2, January 2005)
(SEC Staff to FINRA) (FINRA Regulatory Notice 15-25)

(SEC Letter to PaineWebber Incorporated, April 17, 1986) (NYSE Interpretation Memo 88-1, February 1988)

(SEC Staff to NYSE) (NYSE Interpretation Memo 86-8, August 1986)

A “qualified security” as defined by SEA Rule 15c3-3(a)(6), which has been borrowed may be deposited into a Reserve Bank Account provided the broker-dealer is a Primary Dealer. Borrowed qualified securities must be secured by cash or other qualified securities to be acceptable for 15c3-3 deposits.

The value allowed for the deposit is the lesser of the contract or market value of the securities borrowed. In lieu of valuing the securities at the lesser of contract or market broker-dealers can take a 2% reduction to the market value in valuing these securities for reserve formula deposit purposes.

It is acceptable for a broker-dealer that is not a Primary Dealer to borrow qualified securities as defined by SEA Rule 15c3-3(a)(6) for deposit into a Reserve Bank Account.

(SEC Staff to NYSE) (NYSE Interpretation Memo 92-3, January 1992)
(SEC Staff to NYSE) (NYSE Interpretation Memo 03-2, March 2003)

The SEC has prescribed the following conditions for holding “Qualified Securities” on deposit in a Rule 15c3-3 Special Reserve Account for the Exclusive Benefit of Customers:

Physical Certificates: The bank actually holding the certificates must acknowledge to the broker-dealer in writing that the certificates are identified on the bank’s books as being held free of lien in a special account for the exclusive benefit of customers of the broker-dealer.

Uncertificated Securities: The bank having the direct access to the Federal Reserve Bank book entry system must acknowledge in writing to the broker-dealer that the securities are held free of any lien in a special reserve account for the exclusive benefit of customers of the broker-dealer.

Reverse Repurchase Agreement Securities: Possession or control must be established as in the appropriate paragraph above.

Identification: The securities deposited must be clearly identified as to class or series of the issuer, interest rate and maturity.

Clearance Procedure: Where a purchase or sale involves funds or securities already held in the special reserve account, the values removed must be replaced with equal or greater value. Reductions to the special reserve account may only be made in conformity and compliance with SEA Rule 15c3-3(g) and supported by a reserve formula computation as required. The payment for the purchase and receipt of the securities or delivery of securities and deposit of proceeds in the special reserve account must take place simultaneously.

Correspondent Banks: Where purchase of the securities is made through a correspondent bank, the broker-dealer must be notified by the bank holding the qualified securities or having the direct contact with the Federal Reserve book entry system that:

1. The securities it is carrying for the correspondent bank are identified on its books as being held free of lien in a separate special account for the exclusive benefit of customers of the broker-dealer.
2. The securities are clearly identified as to class or series of the issuer, interest rate and maturity.

(NYSE Interpretation Memo 89-13, November 27, 1989)
(SEC Staff to NYSE) (NYSE Interpretation Memo 90-1, February 1990)

If the market value of securities deposited falls below the reserve requirement an additional deposit should be made to maintain an amount not less than the amount computed in the prior reserve computation.

Qualified securities should be valued at the lesser of contract value or market value when the securities are obtained through reverse repurchase agreements or securities borrowed.

In lieu of valuing the securities at the lesser of contract value or market value, broker-dealers can take a 2% reduction to the market value in valuing these securities for reserve formula deposit purposes.

(SEC Staff to NYSE) (NYSE Interpretation Memo 92-3, January 1992)

Checks deposited or funds wired to a Reserve Bank Account that create overdrafts or increase existing overdrafts in other bank accounts do not qualify as bona fide deposits. Consequently, a broker-dealer cannot meet its deposit requirements by utilizing such overdrawn funds.

In order for a deposit to be considered bona-fide, the bank account from which the funds were wired must have had funds on deposit per the books of the broker-dealer in excess of the wired amount at the time the wire was sent.

A deposit made from an overdrawn account can only be considered an unsecured loan if the bank acknowledges in writing that the overdrawn amount is an unsecured loan and the bank agrees to only look toward the overdrawn account for payment (no cross liens).

(SEC Staff to NYSE and NASD) (NYSE Interpretation Memo 90-10, December 1990)
(SEC Staff to NYSE) (NYSE Interpretation Memo 91-5, June 1991)
(SEC Staff to NYSE) (NYSE Interpretation Memo 92-3, January 1992)

Cash deposited into a Reserve Bank Account must have originated directly from wire transfers of fed funds or certified checks and be in the account by 10 A.M.

Clearing house checks are not acceptable for direct deposit into the reserve bank account unless the checks are received directly from customers.

Drafts, notes, or ACH deposits are not acceptable for direct deposit into the Reserve Bank Account.

(SEC Staff to NYSE) (NYSE Interpretation Memo 99-5, May 1999)
(SEC Staff to NYSE) (NYSE Interpretation Memo 03-2, March 2003)

(SEC Staff to NYSE) (NYSE Interpretation Memo 99-5, May 1999)

A firm may deposit foreign currency in a Special Reserve Bank Account, provided there is an offsetting customer credit balance in the same foreign currency in the Reserve Formula.

In addition, the bank where the deposit is held must meet the definition of a “bank” pursuant to SEA Rule 15c3-3(a)(7), and the account must be established and maintained pursuant to SEA Rule 15c3-3(f).

(SEC Staff to NYSE) (NYSE Interpretation Memo 96-3, April 1996)

1. The broker-dealer is responsible for any violation of SEA Rule 15c3-3 resulting from this arrangement.
2. Both the broker-dealer and the counterparty to the transaction must maintain accounts with the same bank.
3. The bank must have equity capital in excess of $500,000,000.
4. The bank cannot be the counterparty, or be affiliated with the counterparty, to the transactions.
5. Daily confirmations must be provided by the bank to the broker-dealer disclosing the specific securities that were deposited into and withdrawn from the broker-dealer’s Account. The term “various” or other similar terms, cannot be used to identify the securities on the confirmations.
6. The bank must prepare monthly statements for the Account disclosing all money movements and securities activity. The specific securities deposited into and withdrawn from the Account must be disclosed and the time stamps for these movements must be made available upon request of the SEC or other SRO. The term “various” or other similar terms, cannot be used to identify the securities on the statements. In lieu of a separate monthly statement, the bank can provide daily activity reports as long as all activity is shown for each day of the month, and on days where no activity occur a statement is provided that states there were no money or securities movements in the account(s).
7. In lieu of recording the specific securities deposited into and withdrawn from the Account on its stock record, the broker-dealer may elect to produce a subsidiary listing or record which must clearly identify the specific securities deposited into and withdrawn from the Account. This subsidiary record must be maintained in accordance with the recordkeeping requirements of SEA Rules 17a-3 and 17a-4.
8. Accurate pricing of securities must be performed by the bank. In addition, qualified securities used in these tri-party repurchase arrangements for deposit into the Account must have readily available market prices.
9. The broker-dealer will be responsible for verifying that appropriate qualified securities were deposited into the Account.
10. The bank must represent that it will at all times maintain funds or securities in the Account at least equivalent to the aggregate amount(s) deposited by the broker-dealer.
11. The bank must represent that it will not place a lien on funds or securities it moves as part of the tri-party repurchase arrangement prior to their deposit into the Account.

(SEC Staff to NYSE) (NYSE Interpretation Memo 97-6, October 1997)

The SEC has censured a broker-dealer for violating SEA Rule 15c3-3(e)(2) by substituting proprietary bank loans for customer bank loans prior to making the formula computation and reinstating the customer loans shortly thereafter.

The SEC advised that the intent and objective of SEA Rule 15c3-3, as indicated in SEC Release No. 34-9775 dated September 14, 1972, is.…”to perfect the objective of the elimination of the use by broker-dealers of customer funds and securities to finance firm overhead and such firm activities as trading and underwriting through the separation of customer related activities from other broker-dealer operations”.

The SEC staff advised that broker-dealers that would otherwise have had a higher reserve deposit requirement should be aware that substitution of proprietary or non-customer bank loans for customer bank loans only for the week-end or on the day of the formula computation may be regarded as an intentional circumvention of the rule if the customer loans are reinstated shortly thereafter.

(NYSE Interpretation Memo 89-10, August 23, 1989)
(SEC Staff to NYSE) (NYSE Interpretation Memo 89-11, October 1989)

1. During periods between formula computations funds are obtained by loaning customer securities. Immediately before a formula computation is made, securities are borrowed which are returned after the formula computation date and for purposes of the formula computation a presumption is made, through the application of an allocation system or otherwise, that the securities it borrowed - and not customer securities - were on loan on the formula computation date.
2. Any other device, window dressing or restructuring of transactions made solely to reduce an excess of credits over debits in the formula computation and not otherwise a normal business transaction.

The staff of the SEC further stated that such techniques may be in violation of the requirements of the rule in that customer derived funds are used during the period between computations “...in areas of the firm’s business such as underwriting, trading and overhead” contrary to the purpose of the rule.

(NYSE Interpretation Memo 89-10, August 23, 1989)
(SEC Staff to NYSE) (NYSE Interpretation Memo 89-11, October 1989)

If the normal month-ending day is other than that as of which a weekly computation would be made, only one computation will be required during that week, as of the month-ending day. In any case, a complete computation must be made as of the month end date.

See interpretation 15c3-3a/01 (Exhibit A) for special rules covering the weekly determination of various Reserve Formula items.

If the normal month-end closing date is other than the last business day of the calendar month, the next weekly computation is required as of the close of the last business day of the following week. No computation is required as of the last business day of the calendar month.

(SEC Release 34-9922, January 2, 1973) (NYSE Interpretation Memo 83-2, April 1983)
(SEC Release 34-9922, January 2, 1973) (NYSE Interpretation Memo 89-7, June 1989)

(SEC Staff to NYSE)

(SEC Staff to NYSE) (NYSE Interpretation Memo 99-5, May 1999)

(SEC Staff to NYSE) (NYSE Interpretation Memo 78-1, May 1978)

(SEC Staff to NYSE) (NYSE Interpretation Memo 88-1, February 1988)

(NYSE Interpretation Memo 03-3, April 2003)

(FINRA Regulatory Notice 15-25)

Reserve Bank Accounts (Customers and PAB) maintained at the same non-affiliated bank which contain cash deposits, money market deposits, time deposits and certificates of deposit must be aggregated in determining the total amount deposited when computing the concentration calculation pursuant to SEA Rule 15c3-3(e)(5).

Note: See interpretations 15c3-3(a)(6)/0121 (Certificates of Deposit in Reserve Bank Accounts – Aggregation of Deposits for Concentration Calculation), 15c3-3(e)(1)/010 (Money Market Deposits in Reserve Bank Accounts – Aggregation of Deposits for Concentration Calculation) and 15c3-3(e)(1)/012 (Time Deposits in Reserve Bank Accounts – Aggregation of Deposits for Concentration Calculation).

(SEC Staff to FINRA) (FINRA Regulatory Notice 15-25)

The notification letter required from the bank where the Reserve Account is established and maintained as required by SEA Rule 15c3-3(f) must be on bank stationary and signed by an authorized officer of the bank.

In addition, the letter must clearly state that said account “...shall be subject to no right, charge, security interest, lien or claim of any kind in favor of the bank or any person claiming through the bank.”

There must be no exceptions, either directly or indirectly, to this provision.

(SEC Staff to NASD) (NYSE Interpretation Memo 90-10, December 1990)

If the notification letter required from the bank, where the Reserve Account is established and maintained, contains language similar to the following:

then the notification letter must be amended to also include the following provisions:

1. [bank] shall not assert any claim against the [Reserve] Account.
2. [bank] shall immediately notify the United States Securities and Exchange Commission (“SEC”), the Securities Investor Protection Corporation (“SIPC”), and the designated examining authority of the broker or dealer that maintains the [Reserve] Account at [bank] if a legal action is initiated asserting any claim against the [Reserve] Account or if a court order is entered relating to the [Reserve] Account.
3. In the event that any legal action in any court is initiated asserting any claim against the [Reserve] Account, [bank] shall inform the court that the [Reserve] Account is an account maintained at [bank] by a broker or dealer, that the [Reserve] Account was established pursuant to Securities Exchange Act of 1934 Rule 15c3-3, that all cash and/or qualified securities deposited in the [Reserve] Account are being held by [bank] for the exclusive benefit of customers and/or proprietary accounts of brokers or dealers (“PAB”) of the broker or dealer in accordance with the regulations of the SEC, and that [bank] has agreed in writing with the broker or dealer that the [Reserve] Account shall be subject to no right, charge, security interest, lien, or claim of any kind in favor of [bank] or any person claiming through [bank].

(SEC Staff to NYSE) (NYSE Interpretation Memo 02-5, May 2002)
(SEC Staff to FINRA) (FINRA Regulatory Notice 15-25)

(SEC Letter to Holland & Holland, August 20, 1984) (NYSE Interpretation Memo 84-9, November 1984)

A Reserve Account computation is not required when qualified securities are withdrawn provided that federal funds or other qualified securities have been deposited prior to or at the same time as the withdrawal.

Market appreciation and/or accrued interest on a deposit cannot be withdrawn without preparing a current reserve computation.

(SEC Letter to Olde & Co., Inc., April 1, 1986) (NYSE Interpretation Memo 88-1, February 1988)
(SEC Staff to NYSE) (NYSE Interpretation Memo 92-3, January 1992)

• The funds are withdrawn only for remittance to the mutual fund sponsor no later than noon of the next business day following deposit; and
• The amount on deposit shall always equal the credits contained in the formula for the related customers.

(SEC Letter to The Ohio Company, March 21, 1985) (NYSE Interpretation Memo 88-1, February 1988)

• The amount on deposit is maintained in cash and is withdrawn only to purchase mutual fund shares or other qualified investments for IRA and other qualifying retirement plans for the customers whose funds were deposited into the separate account; and
• The amount on deposit shall always equal the credits contained in the formula for the related customers.

(SEC Letter to PaineWebber Inc., April 17, 1986) (NYSE Interpretation Memo 88-1, February 1988)

(SEC Letter to Wall Street Clearing Co., April 11, 1984) (NYSE Interpretation Memo 88-1, February 1988)

Multiple withdrawals from the Reserve Bank Account are not specifically prohibited as long as they are done within the permissible time frame from the completion of the reserve computation until no later than one hour after the opening of banking business on the second business day following the computation date. Furthermore, the sum of the withdrawals cannot exceed the amount computed to be in excess of the requirement.

Broker-dealers should not make a practice of multiple withdrawals.

(SEC Staff to NYSE) (NYSE Interpretation Memo 03-2, March 2003)

• In anticipation of a securities transaction on behalf of that customer;
• In order to satisfy a customer’s request in connection with a sale of the customer’s securities which generates proceeds; or
• In order to pay an issuer for a customer transaction resulting from a firm contractual commitment.

1. The customer funds received in connection with a specific securities purchase or sale creating the free credit item are deposited directly into a separate Reserve Bank Account established in conformity with SEA Rule 15c3-3(f) when the funds are received. This account would be in addition to any other of the broker-dealer’s customary Reserve Bank Accounts. (Each underwriting will be deemed to be a single purchase regardless of the number of the broker-dealer’s customers purchasing securities pursuant to the underwriting.) The receipt and disbursement of the customer funds must be separately identified on a broker-dealer’s records. The credit items may not be netted against any debit items;
2. The amount received per transaction or with respect to a particular customer is equal to at least 25% of the total of the credit items in the most recent Reserve Requirement computation required by SEA Rule 15c3-3(e);
3. If a broker-dealer is required to segregate customer funds pursuant to more than one transaction at any particular time, the funds of each transaction should not be commingled with those of any other transaction; and
4. The broker-dealer has net capital equal to at least $250,000 at the time of receipt of the customer monies.

(SEC Letter to NYSE, April 25, 1990) (NYSE Interpretation Memo 90-6, September 1990)

(SEC Staff to NYSE)

(SEC Staff to NYSE) (NYSE Interpretation Memo 80-4, March 1980)

(SEC Staff to FINRA) (FINRA Regulatory Notice 21-27)

(SEC Letter to A. Webster Dougherty & Co., Inc., June 6, 1980)
(NYSE Interpretation Memo 81-9, December 1981)

The level of such investment is determined by using the 14 day moving average balance of checks issued but not presented to the account for payment, adjusted by known factors based on past experience and any applicable early withdrawal penalties, but in no event to exceed $1,000,000.

The broker-dealer will at all times keep no less than $100,000 of its own funds in the account and obtain a line of credit from the bank in which the account is held to ensure payment of presented checks and prevent any checks from being returned. If, for any reason the line of credit is not available, the bank must redeem as many CD’s as necessary to honor the checks presented.

Any restrictions, including those in SEA Rule 15c3-3(f), as to the Special Account must pertain also to the CD’s in the account.

(SEC Letter to Summit Corporation, April 22, 1986) (NYSE Interpretation Memo 88-1, February 1988)

• Funds will be promptly deposited in and paid out of the operating account;
• The flow of funds will be continuously monitored to assure that there are always sufficient funds in the operating account to pay checks presented for payment;
• From time to time a portion of the overnight balances will be transferred to the MMD account; and
• The bank will agree to pay, if for any reason there are not enough funds in the operating account to pay a check that has been presented for collection, any overdrafts up to the full amount of the aggregate collected balance in the operating account and the MMD account.

Any restrictions included in SEA Rule 15c3-3(f) shall apply to the operating and the MMD accounts.

(SEC Letter to Equitable Financial Companies, September 30, 1988)
(NYSE Interpretation Memo 89-7, June 1989)

The broker-dealer must act as promptly as practical under the circumstances and any unreasonable delay may result in disqualification for the exemption under SEA Rule 15c3-3(k)(2)(i).

(SEC Letter to Frazee, Olifiers & Co. Inc., March 3, 1973) (NYSE Interpretation Memo 90-11, December 1990)

• The introducing broker deposits money into a separate 15c3-3 bank account similar to those accounts established under a SEA Rule 15c3-3 (k)(2)(i) exemption and the balance in the bank account at all times must equal or exceed the payables to customers; and
• The firm issues checks from this bank account to pay the customer or the creditor of the customer.

(SEC Staff to NYSE) (NYSE Interpretation Memo 02-3, February 2002)

1. The BABD obtains and preserves as part of its records a written authorization from its CBD and its customers authorizing them to direct transfers of funds from their accounts at affiliated banks;
2. The BABD will have access to the CBD’s and its customers’ accounts at the bank solely for the purpose of settling the balance owing from any trades the customers have made; and
3. The BABD enters into a written agreement with its affiliated bank in which the affiliated bank agrees to be responsible to the customers or the CBD for any loss of funds resulting from misappropriation, conversions or errors made by the BABD in connection with the settlement of any securities transactions.

(SEC Letter to NASD, July 1, 1986) (NYSE Interpretation Memo 88-1, February 1988)

1. The check is made payable to the order of the BABD’s customer;
2. The bank account is in the name of the CBD;
3. There is a written contract between the CBD and the BABD which explicitly states that the BABD is authorized to draw on the account only as agent for the CBD; and
4. The CBD does not debit free credit balances or other credit balances by the amount of checks drawn on such account until the checks clear.

(SEC Letter to NASD, July 1, 1986) (NYSE Interpretation Memo 88-1, February 1988)

(SEC Letter to NASD, July 1, 1986) (NYSE Interpretation Memo 88 1, February 1988)

(SEC Letter to NASD, July 1, 1986) (NYSE Interpretation Memo 88-1, February 1988)

In effect, introducing activity is exempt under (k)(2)(ii) and sale of investment company shares is exempt under (k)(2)(i).

(SEC Letter to NASD, July 1, 1986) (NYSE Interpretation Memo 88-1, February 1988)

A broker-dealer operating pursuant to the (k)(2)(ii) exemptive provision must transmit customer funds and securities by noon of the next business day following receipt.

(SEC Staff to NYSE) (NYSE Interpretation Memo 95-3, May 1995)

(SEC Staff to NYSE) (NYSE Interpretation Memo 95-3, May 1995)

1. The bank account is in the name of the clearing firm;
2. There is a written agreement between the carrying firm and the introducing broker-dealer stating that the introducing firm may draw upon the account only as agent; and
3. The customer’s account is debited the amount of the check when the check is issued and the outstanding checks payable to the customers of the correspondents are included in the clearing firm’s 15c3-3 Reserve Formula credit balances.

(SEC Staff to NYSE) (NYSE Interpretation Memo 96-4, November 1996)

(SEC Release 34-9922, January 2, 1973)

(U.S. Treasury Department Release, February 28, 1994)
(SEC Staff to NYSE) (NYSE Interpretation Memo 95-3, May 1995)

(SEC Staff to NYSE)

(SEC to Merrill Lynch, Pierce, Fenner & Smith Inc., December 17, 1973)
(NYSE Interpretation Memo 78-1, May 1978)

The exercise shall be subject to the following:

• When the security has been sold and has not been received from the issuer within 13 business days following trade date of the sale, it is subject to the buy-in provision of this paragraph (m) unless an extension of time is requested and approved under paragraph (n) of this rule.

(SEC Staff to NYSE) (NYSE Interpretation Memo 88-20, November 1988)

The alternative procedure stipulates:

1. The filing of a written notice with the designated examining authority of the intention to apply the alternative procedure;
2. The taking of proprietary haircut charges pursuant to SEA Rule 15c3-1 on securities due from customers on long sale transactions 30 days after settlement date, or 30 days from trade date where settlement is on a seller's option basis rather than on a customary settlement cycle; and
3. The maintenance and preservation of certain detailed records concerning the number and contractual value of contracts and transactions in foreign issued, foreign settled securities.

See interpretation 15c3-3(d)(2)/01 for complete details.

(SEC Letter to SIA, June 16, 1988) (NYSE Interpretation Memo 88-20, November 1988)

In order to allow the Exchange’s computerized extension system to properly process extensions permitted under SEA Rule 15c-3 all requests must be received on the due dates listed below. Adherence to this procedure will reduce the number of denied requests for improper dates and establish uniformity within member organizations.

(SEC Staff to FINRA) (FINRA Regulatory Notice 18-03)

The fact that a buy-in has been instituted does not eliminate the need for an extension of time on the due date if possession and control is still required. Even if a member organization has been granted an extension of time, it may be bought-in under NYSE Rules 282 and 284 by the member organization with which the contract is open.

(SEC Staff to NASD)

The specific information required for filing extension requests under subparagraph (d)(2), “fail to receive,” are as follows:

• Name of the security and CUSIP No.
• Total number of shares, bond, units, etc.
• Total contract value
• Settlement date
• Due date - (always 30 calendar days after settlement date)
• Reason for request
• Days requested (maximum 14)
• Broker-dealer failing to deliver

(NYSE Information Memo 94-30, July 29, 1994)

The specific information required for filing extension requests under subparagraph (d)(3), “dividends, stock splits and similar distributions receivable,” are as follows:

• Name of security and CUSIP No.
• Total number of shares, bonds, units, etc.
• Total market value
• Payable date
• Due date - (always 45 calendar days after settlement date)
• Reason for request
• Days requested (maximum 14)
• Party from whom due

(NYSE Information Memo 94-30, July 29, 1994)

The specific information required for filing extension requests under paragraph (h), “short security differences”, are as follows:

• Name of security and CUSIP No.
• Total number of shares, bonds, units, etc.
• Total market value
• Date of discovery pursuant to Rules 17a-5 or 17a-13
• Due date - (always 45 calendar days after discovery)
• Days requested

Note: Contact the Credit Regulation Section of the Exchange prior to submitting any request under paragraph (h) at (212)656-3295.

(NYSE Information Memo 94-30, July 29, 1994)

The list of reasons cited below does not constitute a finding by the Exchange that the reason accompanying a request represents an “exceptional circumstance.” It is the responsibility of the member organization to determine that the reason cited actually applied and that the request is bona fide.

• 70 - Security already in transfer by the delivering party.
• 71 - Security already in the mail from the delivering party.
• 72 - Buy-in notice has been issued, but additional time needed before execution of buy-in.
• 73 - Buy-in notice issued but unable to buy-in due to no market or security in short supply.
• 74 - Security held at foreign depository and delivering party has already advised foreign depository to transfer or issue certificate to you.
• 75 - Security involved in a merger, exchange or reorganization and the issuer has not completed re-registration to delivering party.
• 76 - Security is mutual fund and issuer has not issued certificate to delivering party.
• 77 - A self-regulatory organization has halted trading in the security or prohibited the execution of buy-in notices.
• 78 - Delivering party has filed the necessary documents with the issuer to replace a lost certificate.
• 80 - Any other exceptional circumstances not covered by designated codes. (Use of this code requires prior approval from the Exchange.)

Note: When the permitted extension limit has been reached, member organizations must buy-in the security. If the member organization is unable to execute a buy-in due to no market, security in short supply or SRO has prohibited, the member organization must maintain record of action taken, reason not bought-in, and continue to attempt to execute the buy-in as soon as practicable.

The inclusion of a list of reasons is not itself a finding by the Exchange that these reasons represent an “exceptional circumstance.” It is the responsibility of each firm to determine that the reason cited actually applied and that the request is bona fide. See interpretation 15c3-3(n)/133 for limits.

• 40 - Security has been placed in transfer by a bank for the customer in order to obtain certificate(s) for the amount of shares sold.
• 41 - Customer died on or after trade date. Awaiting appointment of executor or administrator of deceased customer’s account.
• 42 - Broker failed in attempting to buy-in because security is in short supply. Broker has open order to buy-in and trying to complete transaction. [Requires that an open order be maintained until the buy-in of the position is accomplished or otherwise resolved.]
• 43 - Security dividend sold before payable date or short position created in customer account due to dividend received directly by customer upon which broker has a claim. Requests for extensions under this code should be made on the tenth (10th) business day after settlement date. The payable date is deemed to be the trade date. If a dividend claim is processed against an account after payable date, then the date the charge is made to the account will be trade date and an extension request, if necessary, would be due ten (10) business days after settlement date.
• 44 - Security is held in a foreign depository where settlement procedures or delivery terms are incompatible with the Rule.
• 45 - Security is in for exchange as a result of a merger, consolidation, transfer of assets, exchange offer, recapitalization or other similar transaction or conversion. (Reason established to cover situations where an exchange of securities or similar event is being undertaken by customer or delivering agent to accomplish receipt of the security sold.)
• 46 - Certificate delayed in mail during Christmas season or due to a postal strike. (Exchange staff will specifically establish the time periods when this reason may be used.)
• 47 - Customer’s account coming from another broker and Exchange Rule 412 being complied with. (Available when the transfer of an account between member organizations is being accomplished in accordance with Exchange Rule 412 and fails, if necessary, will be created to complete the transfer
• 48 - Customer has been unexpectedly hospitalized or taken seriously ill and is incapable of delivering security. (Illness or hospitalization of customer should be of a nature that makes it impossible for client to deliver security. Condition must occur after the transaction was made. If condition existed prior to trade date, then reason may not be used.)
• 49 - Lost certificate - Broker lost and is replacing or customer lost and has already commenced proceedings for replacement. If customer lost, broker must obtain proof customer is replacing by obtaining copy of any required bond or other appropriate proof.
• 50 - Any other exceptional circumstances not covered by designated codes. (Use of this Code for reasons represented by another code will result in an automatic denial of the extension request.)
• 51 - Acts of God or other abnormal conditions. (Reason may only be used when Exchange staff authorizes it and then solely for the time period and condition specified by staff.)
• 52 - Foreign security sold in a foreign securities market based on foreign settlement procedures. (Available only for sales of foreign securities in a foreign market and the security has not been received within ten (10) business days after settlement date as established by the foreign market.)

(SEC Staff to FINRA) (FINRA Regulatory Notice 18-03)

Member organizations may, in lieu of the ten (10) day buy-in requirements for foreign securities sold in a foreign securities market, apply the alternative procedures permitted under SEA Rule 15c3-3(d)(2). These procedures permit member organizations to treat foreign settled securities similar to fails to receive over thirty (30) calendar days old.

The Exchange’s computerized extension system generates Report 5, “Final on Account - SEC,” as a means of notifying broker/dealers effected by this restriction. Report 5, under the column “Until Date,” indicates the date on which the customer’s restriction will be removed. This information eliminates the need for broker/dealers to research an account to determine the time period a restriction will be in effect.

Further, the computerized system is capable of advancing the “until date” if a special extension is granted or if a new firm should apply for an extension on behalf of the same customer. Accordingly, the “until date” will always represent a period of one year from the date of the ninth most recent extension charged to that customer.

Note: Customers are only permitted a total of nine (9) granted (chargeable) SEC extensions in any twelve month period. Any request for an extension or re-extension (multi) under a chargeable code that is received once a customer reaches limit of nine (9) extensions will be denied.