SEC Division of Trading and Markets no-action letter: Financial Industry Regulatory Authority, Re: Broker-Dealers Holding Cash in a Reserve Account at a Non-Affiliated U.S. Branch of a Foreign Bank under Rule 15c3-3

UNITED STATES

SECURIT ES AND EXCHANGE COMM SS ON

WASHINGTON, DC 20S49

DIVISION OF
TRADING AND MARKETS
February 26, 2014
Ms. Kris Dailey

Vice President, Risk Oversight & Operational Regulation

FINRA

One World Financial Center

200 Liberty Street

New York, NY 10281

Re: Broker-Dealers Holding Cash in a Reserve Account at a

Non-Affiliated U.S. Branch of a Foreign Bank under Rule 15c3-3

Dear Ms. Dailey:
On July 30, 2013, the Securities and Exchange Commission ("Commission") adopted amendments to the broker-dealer financial responsibility rules under the Securities Exchange Act of 1934.1 The amendments include the adoption of new paragraph ( e )(5) to Rule 15c3-3 which places limitations on banks where a broker-dealer can deposit cash to meet its customer or P AB account reserve requirements under paragraph (e) of Rule 15c3-3. 2 More specifically, paragraph (e)(5) of 15c3-3 excludes the following arrangements for purposes of determining maintains the minimum deposits required under Rule 15c3-3: (1) cash deposited an affiliated bank; and (2) cash deposited with a non-affiliated bank to extent that the amount ofthe deposit exceeds 15% the bank's equity capital, as reported by the bank most recent Call Report. The final rules became effective on October 21, 2013. The Commission, however, issued an exemptive order providing broker-dealers a temporary exemption from the requirements of certain of the amendments, including paragraph (e)( 5) Rule 15c3-3, until March 3, 2014? 2 17 CFR 240.15c3-3(e)(5). final rules define the term to mean "a"''"''"''"''";" securities account of a broker or dealer (which includes a foreign broker or dealer, or a foreign bank acting as a broker or dealer) other than a delivery-versus-payment account or a receipt￾versus-payment account." The term also excludes accounts that have been subordinated to the claims of creditors ofthe carrying broker or dealer. 17 CFR 240.15c3-3(a)(l6).

Ms. Kris Dailey
February 26, 2014
In response to the proposing release, some commenters expressed concern about the requirement to use a Call Report to determine a bank's equity capital under paragraph (e)(5) of Rule 15c3-3. These commenters stated that, because there is no equity capital line item in Call Reports filed by U.S. branches of foreign banks (because such branches are not separately incorporated legal entities), the Call Report provision in the rule would potentially prohibit a broker-dealer from utilizing a U.S. branch of a foreign bank to hold deposits of cash to meet its reserve requirements.4 In adopting the final rule, however, the Commission retained the requirement that a bank's equity be determined using its most recent Call Report but stated it will consider requests for exemptive relief from broker-dealers that wish to hold cash in a reserve account at a U.S. branch of a foreign bank. 5 Subsequent to the publication of the adopting release, the Commission has received exemptive requests from certain foreign banks on behalf of broker-dealers that currently maintain reserve accounts at the foreign bank's U.S. branch. 6 The Commission is currently reviewing and evaluating the exemptive requests. In order to provide time to consider the issues presented, and to prevent potential dislocations that would be associated with moving cash held in reserve accounts at U.S. branches of foreign banks prior to Commission action on such requests, the staff of the Division ofTrading and Markets ("Division") will not recommend enforcement action to the Commission if a broker-dealer includes cash held in a reserve account at a non-affiliated U.S. branch of a foreign bank in determining whether it maintains the minimum deposits required under paragraph (e) of Rule 15c3-3, provided the following conditions are satisfied:

1. The foreign bank has an exemptive request pending with the Commission on or
   before March 3, 2014 with respect to its U.S. branch; and nrotKe1r-a~~a11~r uses the foreign bank's equity as reported bank's most recent financial statements, in lieu of a Call Report, to calculate 15% bank equity capital threshold paragraph (e)(5) 1 on or after March 3, 2014. 17, 2013), 78 FR 62930 (Oct. 2013). 4 In the adopting release, the Commission recognized that the U.S. branches of some foreign banks may meet the definition of bank under section 3(a)(6) ofthe Act and, therefore, under paragraph (a)(7) of Rule 15c3-3. See Financial Responsibility Rules for Broker-Dealers, 78 FRat 51834. 5 See Financial Responsibility Rules for Broker-Dealers. 78 FRat 51834-5. 6 Commission staff informally advised certain foreign banks (in response to their inquiries) that staff would review exemptive requests submitted by foreign banks on behalf of broker-dealers that maintain, or will maintain, cash in a reserve account at the foreign bank's U.S. branch. Broker-dealers maintaining cash deposits at a U.S. branch of a foreign bank in order to meet the minimum deposits required under paragraph (e) 15c3-3 should contact the to to

Ms. Kris Dailey
February 26, 2014
These conditions are intended solely for the purpose of this temporary no-action relief and the issuance ofthis letter does not prejudice the Commission's ability to require additional and different conditions with respect to any currently pending exemptive request. The position expressed herein: (1) does not constitute either temporary or final approval by the Commission or the Division of any pending exemptive request; (2) should not be construed as a preliminary view ofthe Commission or Division with respect to the final disposition of any pending exemptive request; and (3) is effective until such time as the Commission takes action with respect to any such currently pending exemptive request. This letter expresses a staff position with respect to enforcement only and does not purport to state any legal conclusion on this matter. Any material change in circumstances may warrant a different conclusion and should be brought immediately to the attention of the Division. Furthermore, this position may be withdrawn or modified if the staff determines that such action is necessary in the public interest, for the protection ofinvestors, or otherwise in furtherance of the purposes ofthe securities laws . .........'"'"''"''" W. Roy Assistant Director