SEC Division of Trading and Markets no-action letter: Financial Industry Regulatory Authority (Definition of "Fully Paid Securities" under Rule 15c3-3)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSlON
WASHINGTON, D.C. 20549
DIVISION OF
TRADING ANO MARKETS
September 28, 2017
Ms. Kris Dailey
Vice President, Risk Oversight & Operational Regulation Financial Industry Regulatory Authority ("FINRA") One World Financial Center 200 Liberty Street New York, NY 10281 Re: Definition of "Fully Paid Securities" under Rule 15c3-3 Dear Ms. Dailey:
Your staff has asked whether the technical amendment to the definition of "fully paid

• ' securities" in paragraph (a)(3) to Rule 15c3-3 ("Rule 15c3-3") under the Securities Exchange
  Act of 1934, as adopted by the amendments to the financial responsibility rules for broker￾dealers (the "final rule amendments"), was intended to expand the scope of securities that are r . deemed to be fully paid securities which therefore cannot be rehypothecated by the carrying broker-dealer. 1 Prior to the finai rule amendments, the term "fully paid securities" was defined in paragraph ( a )(3) to Rule 15c3-3 to "include all securities carried for the account of a customer in a special cash account as defined in Regulation T promulgated by the Board of Governors ofthe Federal Reserve System, as well as margin equity securities within the meaning of Regulation T which are carried for the account of a customer in a general account or any special account under Regulation T during any period when section 8 ofRegulation T (12 CFR 220.8) specifies that margin equity securities shall have no loan value in a general account or special convertible debt security account, and all such margin equity securities in such account ifthey are fu11y paid; Provided, however, [tJhat the term 'fully paid securities' shall not apply to any securities which are purchased in transactions for which the customer has not made full payment."2 See Financial R nsibili Rules for Broker-Dealers Exchange Act Release No. 70072 (July 30, 2013), 78 FR 51824 (Aug. 21, 2013). :?. Broker-Dealers: Maintenance of Certain Basic Reserves. Exchange Act Release No. 9856 (Nov. l 0, 1972), 37 FR 25224, 25226 (Nov. 29, 1972).

Ms. Kris Dailey
September 28, 2017
As part ofthe final rule amendments, the term "fully paid securities" was amended to "mean[] all securities carried for the account of a customer in a cash account as defined in Regulation T (12 CFR 220.1 et seq.), as well as securities carried for the account of a customer in a margin account or any special account under Regulation T that have no loan value for margin purposes, and all margin equity securities in such accounts ifthey are fully paid:
Provided, however, that the term fully paid securities does not apply to any securities purchased in transactions for which the customer has not made full payment. " 3 The amendment to the definition of"fully paid securities" in paragraph (a)(3) to Rule 15c3-3 pursuant to the final rule amendments was not designed to substantively change the meaning of this defined term.4 Rather, the amendment to the definition of "fully paid securities" was designed to amend out-of-date citations and remove text that the Commission believed to be superfluous or redundant.5 If you have any questions regarding this letter, please call me at (202) 551-5525. Sincerely, ; 1 l .1 t Ul · -l,;:-~/ · Michael A. Macchiaroli Associate Director Division ofTrading and Markets cc: Susan DeMando Scott, FINRA Yui Chan, FINRA Rules for Broker-Dealers, 78 FR at 51902. See id. at 51858. See id. ("[T]he Commission has modified the text ofparagraph (a)(3) to Rule 15c3-3 to more closely follow the original defa1ition, while stiH adopting the updated references and terminology to reflect changes made to Regulation T since 1972."). 4