Frequently Asked Questions About Exemption Reporting Under SEA Rule 15c3-3(k) for Purposes of FOCUS Reporting and Updating of Membership Agreements

The staff of the SEC's Division of Trading and Markets ("SEC staff") has recently published new FAQ 18 in the "Frequently Asked Questions Concerning the Amendments to Certain Broker-Dealer Financial Responsibility Rules" and new FAQs 8, 8.1, 12, 12.1 and 12.2 in the "Frequently Asked Questions Concerning the July 30, 2013 Amendments to the Broker-Dealer Financial Reporting Rule."  The new FAQs relate to a broker-dealer that does not meet any of the exemption conditions of paragraph (k) of SEA Rule 15c3-3 (i.e., paragraph (k)(1), (k)(2)(i) or (k)(2)(ii)), but also (1) does not directly or indirectly receive, hold, or otherwise owe funds or securities for or to customers, other than money or other consideration received and promptly transmitted in compliance with paragraph (a) or (b)(2) of SEA Rule 15c2-4; (2) does not carry accounts of or for customers; and (3) does not carry PAB accounts (as defined in Rule 15c3-3) (referred to in the SEC staff's FAQ guidance as a "Non-Covered Firm"). In tandem with the SEC staff's new guidance, FINRA is making available the FAQs below to assist firms that may have questions about their membership agreements and FOCUS Report filings in light of the new SEC staff guidance.

Firms may contact their Risk Monitoring Analyst with any questions.

Q1. If a firm's FINRA membership agreement states that the firm is exempt from SEA Rule 15c3-3 under one or more of the exemptions available under paragraph (k) of that rule, but the firm's activities do not fit within the stated exemption(s), should the firm update its membership agreement?

A1. Yes. The firm should notify its assigned FINRA Risk Monitoring Analyst if it believes that the SEA Rule 15c3-3(k) exemption or exemptions noted in its FINRA membership agreement do not accurately reflect its current business activities. Any request to change the firm's membership agreement must be made in writing by the firm and submitted via Firm Gateway. A correction of the exemption noted in a firm's membership agreement would generally be processed as a membership agreement change, provided no changes to the firm's approved business activities have occurred.

Q2. Will FINRA charge a fee to update the firm's membership agreement to accurately reflect its SEA Rule 15c3-3 exemption?

A2. No. There is no fee to update the firm's membership agreement if the firm is only updating the exemption status and there are no changes to the firm's business.

Q3. If, pursuant to new FAQ 8.1 in the SEC staff's "Frequently Asked Questions Concerning the July 30, 2013 Amendments to the Broker-Dealer Financial Reporting Rule," a broker-dealer does not indicate on the FOCUS Report that it is claiming an exemption from SEA Rule 15c3-3 because the broker-dealer does not meet any of the exemption conditions of paragraph (k) of Rule 15c3-3 (i.e., paragraph (k)(1), (k)(2)(i) or (k)(2)(ii)), but also (1) does not directly or indirectly receive, hold, or otherwise owe funds or securities for or to customers, other than money or other consideration received and promptly transmitted in compliance with paragraph (a) or (b)(2) of Rule 15c2-4; (2) does not carry accounts of or for customers; and (3) does not carry PAB accounts (as defined in Rule 15c3-3) (referred to in the SEC staff's FAQ guidance as a "Non-Covered Firm"), is there any other information that the firm should submit to FINRA on the FOCUS Report in regard to the firm's Rule 15c3-3 exemption status? 

A3. Yes. When filing its FOCUS Report through the eFOCUS system, the firm may enter a memo to Item 4560 that states: "The firm has no possession or control obligations under SEA Rule 15c3-3(b) or reserve deposit obligations under SEA Rule 15c3-3(e) because its business is limited to [list activities]." For instructions on how to add a memo to FOCUS Report line items through the eFOCUS system, please see the FINRA eFOCUS User Guide.