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SEA Rule 15c3-3a Exhibit A and Related Interpretations

Publication Date: February 23, 2023

Interpretations are marked in blue background beneath the rule text to which they relate.

15c3-3a

Exhibit A - Formula for determination of customer and PAB account reserve requirements of brokers and dealers under § 240.15c3-3

  CreditsDebits
 1.Free credit balances and other credit balances in customers' security accounts. (See Note A)XXX 
 2.Monies borrowed collateralized by securities carried for the accounts of customers (See Note B)XXX 
 3.Monies payable against customers' securities loaned (See Note C)XXX 
 4.Customers' securities failed to receive (See Note D)XXX 
 5.Credit balances in firm accounts which are attributable to principal sales to customers.XXX 
 6.Market value of stock dividends, stock splits and similar distributions receivable outstanding over 30 calendar daysXXX 
 7.Market value of short security count differences over 30 calendar days oldXXX 
 8.Market value of short securities and credits (not to be offset by longs or by debits) in all suspense accounts over 30 calendar daysXXX 
 9.Market value of securities which are in transfer in excess of 40 calendar days and have not been confirmed to be in transfer by the transfer agent or the issuer during the 40 daysXXX 
 10.Debit balances in customers' cash and margin accounts excluding unsecured accounts and accounts doubtful of collection. (See Note E) XXX
 11.Securities borrowed to effectuate short sales by customers and securities borrowed to make delivery on customers' securities failed to deliver XXX
 12.Failed to deliver of customers' securities not older than 30 calendar days XXX
 13.Margin required and on deposit with the Options Clearing Corporation for all option contracts written or purchased in customer accounts. (See Note F) XXX
 14.Margin required and on deposit with a clearing agency registered with the Commission under section 17A of the Act (15 U.S.C. 78q-1) or a derivatives clearing organization registered with the Commodity Futures Trading Commission under section 5b of the Commodity Exchange Act (7 U.S.C. 7a-1) related to the following types of positions written, purchased or sold in customer accounts: (1) security futures products and (2) futures contracts (and options thereon) carried in a securities account pursuant to an SRO portfolio margining rule (See Note G) XXX
 Total credits  
 Total debits  
 15.Excess of total credits (sum of items 1-9) over total debits (sum of items 10-14) required to be on deposit in the “Reserve Bank Account” (§ 240.15c3-3(e)). If the computation is made monthly as permitted by this section, the deposit must be not less than 105% of the excess of total credits over total debits. XXX

Notes Regarding the Customer Reserve Bank Account Computation

15c3-3a(Note A) Item 1 must include all outstanding drafts payable to customers which have been applied against free credit balances or other credit balances and must also include checks drawn in excess of bank balances per the records of the broker or dealer.
15c3-3a(Note B) Item 2 must include the amount of options-related or security futures product-related Letters of Credit obtained by a member of a registered clearing agency or a derivatives clearing organization which are collateralized by customers' securities, to the extent of the member's margin requirement at the registered clearing agency or derivatives clearing organization. Item 2 must also include the amount of Letters of Credit which are collateralized by customers' securities and related to other futures contracts (and options thereon) carried in a securities account pursuant to an SRO portfolio margining rule.
15c3-3a(Note C) Item 3 must include in addition to monies payable against customers' securities loaned the amount by which the market value of securities loaned exceeds the collateral value received from the lending of such securities.
15c3-3a(Note D) Item 4 must include in addition to customers' securities failed to receive the amount by which the market value of securities failed to receive and outstanding more than thirty (30) calendar days exceeds their contract value.
15c3-3a(Note E)
15c3-3a(Note E)(1) Debit balances in margin accounts must be reduced by the amount by which a specific security (other than an exempted security) which is collateral for margin accounts exceeds in aggregate value 15 percent of the aggregate value of all securities which collateralize all margin accounts receivable; provided, however, the required reduction must not be in excess of the amounts of the debit balance required to be excluded because of this concentration rule. A specified security is deemed to be collateral for a margin account only to the extent it represents in value not more than 140 percent of the customer debit balance in a margin account.
15c3-3a(Note E)(2) Debit balances in special omnibus accounts, maintained in compliance with the requirements of Section 7(f) of Regulation T (12 CFR 220.7(f)) or similar accounts carried on behalf of another broker or dealer, must be reduced by any deficits in such accounts (or if a credit, such credit must be increased) less any calls for margin, mark to the market, or other required deposits which are outstanding 5 business days or less.
15c3-3a(Note E)(3) Debit balances in customers' cash and margin accounts included in the formula under Item 10 must be reduced by an amount equal to 1 percent of their aggregate value.
15c3-3a(Note E)(4) Debit balances in cash and margin accounts of household members and other persons related to principals of a broker or dealer and debit balances in cash and margin accounts of affiliated persons of a broker or dealer must be excluded from the Reserve Formula, unless the broker or dealer can demonstrate that such debit balances are directly related to credit items in the formula.

15c3-3a(Note E)(4)/01 Determination of the Includible Amount of an Affiliated Account’s Debit Balance in the Reserve Formula
A broker-dealer may utilize its reserve formula allocation to determine the includible amount of an affiliated account’s debit balance that is related to a credit item in the reserve formula.

The broker-dealer’s allocation system must be able to determine any long security position underlying an affiliated account’s debit balance that allocates to a short security position underlying the related credit item in the reserve formula.

Credit items that have been included in the reserve formula, which may be considered as relating to an affiliated account’s debit balance, are limited to those related to bank loan, securities loan, fail to receive, customer short, proprietary short, PAB short and non-customer short.

Each credit item identified as relating to an affiliated account’s debit balance must have a related credit balance which is included in the reserve formula, in order for the affiliated account’s debit balance to be includible in the reserve formula.

For purposes of this interpretation, the term “affiliated account” refers to cash and margin accounts of household members and other persons related to principals of a broker-dealer, as well as cash and margin accounts of affiliated persons of a broker-dealer.

(SEC Staff to NYSE) (NYSE Interpretation Memo 07-4, April 2007)
(SEC Staff to FINRA) (FINRA Regulatory Notice 15-25)

15c3-3a(Note E)(5) Debit balances in margin accounts (other than omnibus accounts) must be reduced by the amount by which any single customer's debit balance exceeds 25% (to the extent such amount is greater than $50,000) of the broker-dealer's tentative net capital (i.e., net capital prior to securities haircuts) unless the broker or dealer can demonstrate that the debit balance is directly related to credit items in the Reserve Formula. Related accounts (e.g., the separate accounts of an individual, accounts under common control or subject to cross guarantees) will be deemed to be a single customer's accounts for purposes of this provision.

If the registered national securities exchange or the registered national securities association having responsibility for examining the broker or dealer (“designated examining authority”) is satisfied, after taking into account the circumstances of the concentrated account including the quality, diversity, and marketability of the collateral securing the debit balances or margin accounts subject to this provision, that the concentration of debit balances is appropriate, then such designated examining authority may grant a partial or plenary exception from this provision. The debit balance may be included in the reserve formula computation for five business days from the day the request is made.

15c3-3a(Note E)(5)/01 Determination of the Includible Amount of a Customer’s Concentrated Margin Debit Balance in the Reserve Formula

A broker-dealer may utilize its reserve formula allocation to determine the includible amount of a customer’s concentrated margin debit balance that is related to a credit item in the reserve formula.

The broker-dealer’s allocation system must be able to determine any long security position underlying a customer’s concentrated margin debit balance that allocates to a short security position underlying the related credit item in the reserve formula.

Credit items that have been included in the reserve formula, which may be considered as relating to a customer’s concentrated margin debit balance, are limited to those related to bank loan, securities loan, fail to receive, customer short, proprietary short, PAB short and non-customer short.

Each credit item identified as relating to a customer’s concentrated margin debit balance must have a related credit balance which is included in the reserve formula, in order for the customer’s concentrated margin debit balance to be includible in the reserve formula.

(SEC Staff to NYSE) (NYSE Interpretation Memo 07-4, April 2007)
(SEC Staff to FINRA) (FINRA Regulatory Notice 15-25)

15c3-3a(Note E)(5)/02 Exclusion of Omnibus Accounts from the Requirements of Note E(5)
The term “omnibus account” in Note E(5) refers to an omnibus credit account maintained in compliance with the requirements of section 7(f) of Regulation T (12 CFR 220.7(f)). Omnibus credit under section 7(f) may only be extended to a broker-dealer registered under section 15 of the Exchange Act.

The exclusion of omnibus account from the requirements of Note E(5), therefore, is not available for accounts established for non-U.S. registered broker-dealers, nor for an account that is classified as a customer account under paragraph (a)(1) of Rule 15c3-3, because it contains assets of customers of a non-U.S. registered broker-dealer (sometimes referred to as a “single consolidated margin account”).

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

15c3-3a(Note E)(6) Debit balances in joint accounts, custodian accounts, participation in hedge funds or limited partnerships or similar type accounts or arrangements that include both assets of a person or persons who would be excluded from the definition of customer (“noncustomer”) and assets of a person or persons who would be included in the definition of customer must be included in the Reserve Formula in the following manner: If the percentage ownership of the non-customer is less than 5 percent then the entire debit balance shall be included in the formula; if such percentage ownership is between 5 percent and 50 percent then the portion of the debit balance attributable to the non-customer must be excluded from the formula unless the broker or dealer can demonstrate that the debit balance is directly related to credit items in the formula; or if such percentage ownership is greater than 50 percent, then the entire debit balance must be excluded from the formula unless the broker or dealer can demonstrate that the debit balance is directly related to credit items in the formula.

15c3-3a(Note E)(6)/01 Netting of Same Customer’s Balances – (Rescinded)

(NYSE Interpretation Memo 04-3, June 2004)

15c3-3a(Note E)(6)/011 Netting of Same Customer’s Balances
A short sale credit balance, other than a balance resulting from an open short versus the box position, may not be used for netting purposes with a debit balance with the same customer in arriving at the excludable debit balance portion from the reserve formula pursuant to Notes E(4), E(5), and E(6).

(SEC Staff to NYSE) (NYSE Interpretation Memo 04-3, June 2004)

15c3-3a(Note E)(6)/02 Determination of the Includible Amount of a Non-Customer’s Debit Balance Portion in a Joint Account with a Customer in the Reserve Formula
A broker-dealer may utilize its reserve formula allocation to determine the includible amount of a non-customer’s debit balance portion in a joint account with a customer that is related to a credit item in the reserve formula.

The broker-dealer’s allocation system must be able to determine any long security position underlying a non-customer’s debit balance portion in a joint account with a customer that allocates to a short security position underlying the related credit item in the reserve formula. Credit items that have been included in the reserve formula, which may be considered as relating to a non-customer’s debit balance portion in a joint account with a customer, are limited to those related to bank loan, securities loan, fail to receive, customer short, proprietary short, PAB short and non-customer short.

Each credit item identified as relating to a non-customer’s debit balance portion in a joint account with a customer must have a related credit balance which is included in the reserve formula, in order for the non-customer’s debit balance portion in a joint account with a customer to be includible in the reserve formula.

For purposes of this interpretation, the term “joint account” refers to joint accounts, custodian accounts, participation in hedge funds or limited partnerships or similar type accounts or arrangements between a “non-customer” and a “customer”, as defined under SEA Rule 15c3-3(a)(1).

(SEC Staff to NYSE) (NYSE Interpretation Memo 07-4, April 2007)
(SEC Staff to FINRA) (FINRA Regulatory Notice 15-25)

15c3-3a(Note F) Item 13 must include the amount of margin required and on deposit with the Options Clearing Corporation to the extent such margin is represented by cash, proprietary qualified securities and letters of credit collateralized by customers' securities.
15c3-3a(Note G)
15c3-3a(Note G)(a) Item 14 must include the amount of margin required and on deposit with a clearing agency registered with the Commission under section 17A of the Act (15 U.S.C. 78q-1) or a derivatives clearing organization registered with the Commodity Futures Trading Commission under section 5b of the Commodity Exchange Act (7 U.S.C. 7a-1) for customer accounts to the extent that the margin is represented by cash, proprietary qualified securities, and letters of credit collateralized by customers' securities.

15c3-3a(Note G)(a)/01 Customer Security Accounts Holding Security Futures Products
The provisions of Note G are only applicable to security futures products written, purchased or sold in customer security accounts.

(SEC Staff to NYSE) (NYSE Interpretation Memo 05-2, January 2005)

15c3-3a(Note G)(b) Item 14 will apply only if the broker or dealer has the margin related to security futures products, or futures (and options thereon) carried in a securities account pursuant to an approved SRO portfolio margining program on deposit with:
15c3-3a(Note G)(b)(1) A registered clearing agency or derivatives clearing organization that:
15c3-3a(Note G)(b)(1)(i) Maintains security deposits from clearing members in connection with regulated options or futures transactions and assessment power over member firms that equal a combined total of at least $2 billion, at least $500 million of which must be in the form of security deposits. For the purposes of this Note G, the term “security deposits” refers to a general fund, other than margin deposits or their equivalent, that consists of cash or securities held by a registered clearing agency or derivative clearing organization; or
15c3-3a(Note G)(b)(1)(ii) Maintains at least $3 billion in margin deposits; or
15c3-3a(Note G)(b)(1)(iii) Does not meet the requirements of paragraphs (b)(1)(i) through (b)(1)(iii) of this Note G, if the Commission has determined, upon a written request for exemption by or for the benefit of the broker or dealer, that the broker or dealer may utilize such a registered clearing agency or derivatives clearing organization. The Commission may, in its sole discretion, grant such an exemption subject to such conditions as are appropriate under the circumstances, if the Commission determines that such conditional or unconditional exemption is necessary or appropriate in the public interest, and is consistent with the protection of investors; and
15c3-3a(Note G)(b)(2) A registered clearing agency or derivatives clearing organization that, if it holds funds or securities deposited as margin for security futures products or futures in a portfolio margin account in a bank, as defined in section 3(a)(6) of the Act (15 U.S.C. 78c(a)(6)), obtains and preserves written notification from the bank at which it holds such funds and securities or at which such funds and securities are held on its behalf. The written notification will state that all funds and/or securities deposited with the bank as margin (including customer security futures products and futures in a portfolio margin account), or held by the bank and pledged to such registered clearing agency or derivatives clearing agency as margin, are being held by the bank for the exclusive benefit of clearing members of the registered clearing agency or derivatives clearing organization (subject to the interest of such registered clearing agency or derivatives clearing organization therein), and are being kept separate from any other accounts maintained by the registered clearing agency or derivatives clearing organization with the bank. The written notification also will provide that such funds and/or securities will at no time be used directly or indirectly as security for a loan to the registered clearing agency or derivatives clearing organization by the bank, and will 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. This provision, however, will not prohibit a registered clearing agency or derivatives clearing organization from pledging customer funds or securities as collateral to a bank for any purpose that the rules of the Commission or the registered clearing agency or derivatives clearing organization otherwise permit; and
15c3-3a(Note G)(b)(3) A registered clearing agency or derivatives clearing organization establishes, documents, and maintains:
15c3-3a(Note G)(b)(3)(i) Safeguards in the handling, transfer, and delivery of cash and securities;
15c3-3a(Note G)(b)(3)(ii) Fidelity bond coverage for its employees and agents who handle customer funds or securities. In the case of agents of a registered clearing agency or derivatives clearing organization, the agent may provide the fidelity bond coverage; and
15c3-3a(Note G)(b)(3)(iii) Provisions for periodic examination by independent public accountants; and
15c3-3a(Note G)(b)(3)(iv) A derivatives clearing organization that, if it is not otherwise registered with the Commission, has provided the Commission with a written undertaking, in a form acceptable to the Commission, executed by a duly authorized person at the derivatives clearing organization, to the effect that, with respect to the clearance and settlement of the customer security futures products and futures in a portfolio margin account of the broker or dealer, the derivatives clearing organization will permit the Commission to examine the books and records of the derivatives clearing organization for compliance with the requirements set forth in § 240.15c3-3a, Note G (b)(1) through (3).

15c3-3a(Note G)(c) Item 14 will apply only if a broker or dealer determines, at least annually, that the registered clearing agency or derivatives clearing organization with which the broker or dealer has on deposit margin related to securities future products or futures in a portfolio margin account meets the conditions of this Note G.

Notes Regarding the PAB Reserve Bank Account Computation

15c3-3a(Note 1) Broker-dealers should use the formula in Exhibit A for the purposes of computing the PAB reserve requirement, except that references to “accounts,” “customer accounts, or “customers” will be treated as references to PAB accounts.
15c3-3a(Note 2) Any credit (including a credit applied to reduce a debit) that is included in the computation required by § 240.15c3-3 with respect to customer accounts (the “customer reserve computation”) may not be included as a credit in the computation required by § 240.15c3-3 with respect to PAB accounts (the “PAB reserve computation”).
15c3-3a(Note 3) Note E(1) to § 240.15c3-3a does not apply to the PAB reserve computation.
15c3-3a(Note 4) Note E(3) to § 240.15c3-3a which reduces debit balances by 1% does not apply to the PAB reserve computation.
15c3-3a(Note 5) Interest receivable, floor brokerage, and commissions receivable of another broker or dealer from the broker or dealer (excluding clearing deposits) that are otherwise allowable assets under § 240.15c3-1 need not be included in the PAB reserve computation, provided the amounts have been clearly identified as payables on the books of the broker or dealer. Commissions receivable and other receivables of another broker or dealer from the broker or dealer that are otherwise non-allowable assets under § 240.15c3-1 and clearing deposits of another broker or dealer may be included as “credit balances” for purposes of the PAB reserve computation, provided the commissions receivable and other receivables are subject to immediate cash payment to the other broker or dealer and the clearing deposit is subject to payment within 30 days.
15c3-3a(Note 6) Credits included in the PAB reserve computation that result from the use of securities held for a PAB account (“PAB securities”) that are pledged to meet intra-day margin calls in a cross-margin account established between the Options Clearing Corporation and any regulated derivatives clearing organization may be reduced to the extent that the excess margin held by the other clearing corporation in the cross-margin relationship is used the following business day to replace the PAB securities that were previously pledged. In addition, balances resulting from a portfolio margin account that are segregated pursuant to Commodity Futures Trading Commission regulations need not be included in the PAB Reserve Bank Account computation.
15c3-3a(Note 7) Deposits received prior to a transaction pending settlement which are $5 million or greater for any single transaction or $10 million in aggregate may be excluded as credits from the PAB reserve computation if such balances are placed and maintained in a separate PAB Reserve Bank Account by 12 p.m. Eastern Time on the following business day. Thereafter, the money representing any such deposits may be withdrawn to complete the related transactions without performing a new PAB reserve computation.
15c3-3a(Note 8) A credit balance resulting from a PAB reserve computation may be reduced by the amount that items representing such credits are swept into money market funds or mutual funds of an investment company registered under the Investment Company Act of 1940 on or prior to 10 a.m. Eastern Time on the deposit date provided that the credits swept into any such fund are not subject to any right, charge, security interest, lien, or claim of any kind in favor of the investment company or the broker or dealer. Any credits that have been swept into money market funds or mutual funds must be maintained in the name of a particular broker or for the benefit of another broker.
15c3-3a(Note 9) Clearing deposits required to be maintained at registered clearing agencies may be included as debits in the PAB reserve computation to the extent the percentage of the deposit, which is based upon the clearing agency's aggregate deposit requirements (e.g., dollar trading volume), that relates to the proprietary business of other brokers and dealers can be identified.
15c3-3a(Note 10) A broker or dealer that clears PAB accounts through an affiliate or third party clearing broker must include these PAB account balances and the omnibus PAB account balance in its PAB reserve computation.

15c3-3a(General)

RESERVE FORMULA (EXHIBIT A – GENERAL)

15c3-3a(General)/01 Weekly Computations
Broker-dealers that make a weekly determination under the Reserve Formula are permitted to net free credit and other credit balances in customers’ security accounts (Reserve Formula, Item 1), with the debit balances in customers’ cash and margin accounts, excluding unsecured debits and accounts doubtful of collection (Reserve Formula, Item 10), for the computations other than that as of the month-end.

The month-end computation must reflect customers’ credit and debit balances separately, permitting, however, the combining of the balances in the several accounts of any one customer. Where customers’ credit and debit balances are developed separately on a monthly basis, the amount of customers’ unsecured debits and accounts doubtful of collection computed at that time may be used in the weekly computation until the next monthly determination.

If customer balances are netted in weekly computations of the formula, to comply with the 1% reduction in debits requirement outlined in Note E(3) of the Reserve Formula, the weekly computations should use the amount of reduction to such debits which was applied at the previous month-end. In the event the netting of customers’ balances on a weekly basis results in a credit, the credit should be increased by the amount of the 1% reduction computed as of the previous month-end.

Note: This does not apply for firms using the alternative net capital computation method.

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

15c3-3a(General)/011 Netting of Customer Balances
In the event that a negative credit results on line Item #1 when the firm allocates customer shorts versus firm longs or customer shorts versus non-customer long, the customer negative credit must be added to the customer debits on line Item #12 which results in an increase in customer debits.

(SEC Staff to NYSE) (NYSE Interpretation Memo 01-3, March 2001)

15c3-3a(General)/012 Netting a Customer’s Account Balances when Preparing the Reserve Formula Computation under the Alternative Standard
A broker-dealer that elects to be subject to the Alternative Standard of SEA Rule 15c3-1(a)(1)(ii) may use a customer’s net account balance (i.e., net of cash account, margin account and bona fide short account), when preparing the weekly and month-end reserve formula computations under SEA Rule 15c3-3a (Exhibit A).

When a customer’s net account balance is used for the reserve formula computation, the broker-dealer must consider other requirements under SEA Rule 15c3-3a (Exhibit A) where adjustments are required to be made in the reserve formula computation (e.g., interpretations 15c3-3a(General)/011 (Exhibit A) and 15c3-3a(Note E)(6)/011) (Exhibit A).

Note: See interpretation 15c3-3a(General)/01 (Exhibit A) (Weekly Computation) for netting of customer account balances when preparing the reserve formula computation, for a broker-dealer that elects to be subject to the Aggregate Indebtedness Standard of SEA Rule 15c3-1(a)(1)(i).

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

15c3-3a(General)/02 Annual Audit
Where the audit date may not fall on a date for which a computation would be required, the broker-dealer shall make a computation as of the audit date and shall make any required deposit within the time specified in the rule. For firms who compute weekly, this audit date computation will be in lieu of the normal computation required for that period. For firms who compute monthly, the audit date computation will be in lieu of any computation required for the calendar month within which the audit falls; provided, that when the audit date is not a month end date the subsequent computation must not be more than 40 calendar days from the date of the audit.

(SEC Letter to NASD, April 28, 1975)

15c3-3a(General)/03 Allocation
Responses to certain of the items contained in the computation may require the determination of an amount that relates to customer accounts, transactions, or activity undertaken to consummate customer transactions based on an allocation method. If it is impractical or unduly burdensome to determine which fail to receive contracts and fail to deliver contracts relate to customer accounts and which securities loaned and securities borrowed are for customer accounts, an appropriate allocation may be made on a conservative basis to accomplish maximum protection for customers. If an allocation is used with regard to the foregoing items, the broker or dealer should be able to demonstrate that the results so obtained regarding designations of customer versus proprietary or non-customer positions would be comparable to those which would be obtained if the respective positions had been developed without the use of an allocation.

(SEC Letter to NYSE, May 3, 1985)

15c3-3a(General)/031 Allocation on Stock Borrow/Stock Loan – (Rescinded)

(NYSE Interpretation Memo 02-7, August 2002)

15c3-3a(General)/032 Allocation on Stock Borrow/Stock Loan
If a market value allocation is used, the general ledger balances (contract value) of stock borrows and stock loans need to be reduced by the excess contract value over market value for only those items excluded from the reserve formula.

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

15c3-3a(General)/04 Making and Retaining a Record of Allocation
When an allocation is required to determine balances, positions or accounts allocable to customers, the broker-dealer shall make and maintain a record of each such allocation and preserve it in accordance with SEA Rule 17a-4.

(SEC Staff to NYSE)

15c3-3a(General)/05 Repurchase, Reverse Repurchase and Matched Repurchase Agreement Transactions are Proprietary
These transactions shall be treated as proprietary transactions in the formula and allocated as such.

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

15c3-3a(General)/06 Subjecting Customers’ Securities to Cross Liens Prohibited
Where a broker pledges customers’ securities as well as his own securities or those of non-customers (partners, other broker-dealers, etc.) with a single pledgee to secure several loans, one or more of which are made against the broker’s own securities, or those of non-customers, it is necessary that the pledgee does not have a lien upon customers collateral for any loan except other loans also made against securities carried for the account of customers of the same broker. In other words customers’ securities and other property should not be available as collateral for proprietary or non-customer loans or obligations.

Such cross lien restrictions would also include but are not limited to obligations arising from:

  • Clearing arrangements
  • Unsecured loans
  • Drafts payable to lender
  • Overdrawn bank accounts
  • Letters of Credit

Customer loans would include “Agreements to Pledge” loan arrangements. See interpretation 15c3-3a(Item 2)/10 (Exhibit A) for amounts includible in the Reserve Formula.

Such arrangements which could subject customers’ securities or property to “cross liens” may be in violation of SEA Rules 8c-1 and 15c2-1.

(SEC Letter to NYSE, May 3, 1985)

15c3-3a(General)/07 “Remote Checking”
The SEC expressed concern about the practice of the issuance to customers of checks drawn on distant banks for the purpose of prolonging a broker-dealer’s use of customer funds. It said this unfairly deprives customers of their immediate use of funds, is inconsistent with an obligation to deal fairly with its customers, is inconsistent with just and equitable principles of trade, and may violate the antifraud provisions of the Federal securities laws.

(NYSE Information Circular NYSE Interpretation Memo 79-11 and SEC Release 34-15194)
(NYSE Interpretation Memo 80-3, February 1980)

15c3-3a(General)/08 Customer Reserve Formula Allocation Chart
This customer reserve formula allocation chart shows the relationship between the various allocable items and may be used in conjunction with the interpretations when an allocation is required to determine the debit and credit values includible in the customer reserve formula computation.

Note: For purposes of the customer reserve formula allocation chart, references to “non-customer” include “PAB accounts” as defined under SEA Rule 15c3-3(a)(16). 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 Staff to FINRA) (FINRA Regulatory Notice 15-25)

A. CREDITS
 Include
Short LocationLong AllocationCreditDebitNotes
Customer Bank Loan vs:
Customer LongYesYes 
Proprietary LongYesNoNote 1
Non-Customer LongYesNoNotes 1, 2
Stock BorrowedYesYesNote 3
Fail to DeliverYesYes 
Non-Customer Bank Loan vs:
Customer Long, Stock Borrowed or Fail to DeliverYesYes 
Non-Purpose Loan accountsYesNoNote 5
Proprietary and Non-Customer accountsNoNo 
Proprietary Bank Loan vs:
Customer account longYesYesNotes 4, 6, 8
Fail to Deliver or Stock BorrowedYesYesNotes 3, 24, 26, 27
Proprietary, subordinated, general partners, directors, and principal officers accounts longNoNoNote 7
All other long allocationsYesNoNotes 4, 7
Any Bank or Custody Location with Cross Lien Provisions vs:Customer account longYesYesNote 9
Collateral to Letter of Credit (LOC) or Collateral Pledged for OCC customer Margin Requirements vs:
Customer accounts longYesYesNote 10
Proprietary Qualified SecuritiesNoYesNote 11
Non-Customer or Proprietary accountsNoNo 
Collateral Pledged to Letter of Credit for Securities Borrowed vs:
Customer accounts longYesYesNote 12
Non-Customer or Non-Purpose Loan accountsNoYesNote 13
Proprietary accountsNoNo 
Collateral Pledged for Securities Borrowed vs:
Customer accounts longYesYesNotes 14, 15
Non-Customer or Non-Purpose Loan accountsNoNoNote 15
Proprietary accountsNoNoNote 15
Securities Loaned vs:
Customer accounts longYesYesNote 16
Fails to DeliverYesYes 
Securities BorrowedNoNoNote 17
Non-Customer and Proprietary accounts longNoNoNote 17
Fails to Receive vs:
Customer accounts longYesYesNote 18
Fails to DeliverYesYesNote 19
Non-Customer accounts longNoNoNote 20
Proprietary accounts longNoNoNote 20
Securities BorrowedYesYesNote 19
Proprietary and Non-Customer Shorts vs:
Customer accounts longYesYesNote 21
Non-Customer accounts longNoNo 
Customer Short Position vs:
Customer longYesYesNote 22
Proprietary and Non-Customer accounts longNoNoNote 23

 

B. OTHER CREDITS OR VALUES INCLUDIBLE REGARDLESS OF ALLOCATION
 Include
 CreditNotes
Securities Borrowed Secured by an Irrevocable Letter of Credit Secured by Customer Margin SecuritiesYesNote 12
Stock Dividends Receivable, Stock Splits and Other Distributions Over 30 Calendar Days OldYesNote 24
Suspense Account Credits and Short Security Count, Unverified Short and Suspense Security Differences:
 Over 7 business days oldYesNote 25
 Over 30 calendar days oldYesNote 26
Transfer over 40 calendar days oldYesNote 27
Prepaid Fails to ReceiveYesNote 28
Unclaimed Dividends and Interest PayableYesNote 29
All outstanding drafts payable to customers which have been applied against free or other credit balances and checks drawn in excess of bank balances (per firm records)YesNote 30
TEFRA Accounts PayableYesNote 31
Accrued Interest Payable on Customer Credit BalancesYesNote 32

 

C. DEBITS
  Include 
Long PositionShort AllocationDebitCreditNotes
Securities Borrowed Collateralized By Cash, U.S. Treasury Bills, Notes, LOCs Secured by Proprietary Qualified Securities, or any other Acceptable Collateral as per (b)(3) vs:
Customer accounts shortYesYesNote 33
Non-customer or Proprietary accounts shortNoNoNote 34
Fails to ReceiveYesYesNote 35
Customer Bank LoanYesYes 
Non-Customer or Proprietary Bank LoanYesYesNote 7
Securities LoanNoNoNote 34
Stock Dividend ReceivableNoNoNote 36
TransferNoNoNote 37
All Other Physical Control LocationsNoNoNote 38
Securities Borrowed Secured by an Unsecured Irrevocable Letter of Credit, Unacceptable Collateral as per (b)(3) or Unsecured Borrows No*Note 39
Fails to Deliver Not Over 30 Calendar Days Old** vs:
Customer accounts shortYesYesNote 40
Non-customer or Proprietary accounts shortNoNo 
Fails to ReceiveYesYesNote 41
Customer Bank LoanYesYes 
Proprietary and Non-Customer Bank LoanYesYesNote 7
Securities LoanedYesYes 
TransferYes***Note 42
Other Physical Control Location for Not More Than 3 Business DaysYesNoNote 43

* As allocated above.
** See interpretations /011, /071, and /09 to Item 12.
*** Credit must be included for unconfirmed items over 40 days.

NOTES REGARDING THE CUSTOMER RESERVE FORMULA ALLOCATION CHART

Note 1Proprietary and non-customer collateral should be removed.
Note 2See interpretation to Item 2 /07.
Note 3The pledge of securities borrowed subject to Reg T 220.16 is an inappropriate use.
Note 4Include market value of the collateral up to the amount borrowed as a credit.
Note 5Separate non-purpose bank loan should be maintained to avoid including a credit in the formula.
Note 6Inappropriate collateral should be removed.
Note 7See interpretations to Item 2 /05 and /051.
Note 8See interpretations to Item 2 /05, /051 and /08.
Note 9Include the amount required by interpretation to Item 2 /10.
Note 10Include up to the amount of OCC margin requirement. See interpretations to Item 2 /02, /021, /03 and /031.
Note 11See interpretation to Item 13 /01.
Note 12Include the market value of the borrowed securities as a credit. See interpretations to Item 11 /01 and Item 2 /04.
Note 13When they are not commingled with customer securities. Otherwise include the market value of the borrowed securities as a credit.
Note 14Include the market value of the pledged securities.
Note 15See Reg T and SEA 15c3-3(b)(3)(iii) for types of collateral that can be pledged to secure borrowed securities. See interpretation to Item 11 /01.
Note 16Credit increased by mark to market. See interpretations to Item 3 /01, /011 and /012.
Note 17See interpretations to Item 3 /02 and /03.
Note 18If the Fail to Receive is over 30 calendar days old, the formula credit is increased by the mark to market. See interpretations to Item 4 /01 and /03.
Note 19If a Fail to Receive matches a Fail to Deliver (not over 30 calendar days old) or a Securities Borrowed of the same quantity and issue, both the credit and debit may be excluded. See interpretations to Item 4 /01 and /07.
Note 20See Interpretations to Item 4 /07.
Note 21Include the market value of short securities. See interpretations to Item 4 /03 and Item 5 /01 and /02.
Note 22Include the market value of unsecured shorts as a credit in the Formula.
Note 23See interpretations to Item 10 /033.
Note 24Include the market value. See interpretation to Item 6 /01.
Note 25Under the alternative method, see interpretations to Item 7 /01 and Item 8 /01, 8 /02 and 8 /03.
Note 26Under the basic method, see interpretations to Item 7 /01 and Item 8 /01, 8 /02 and 8 /03.
Note 27When not confirmed by the transfer agent or issuer. See interpretations to Item 9 /01 and /02.
Note 28Include the market value of the short securities position. See interpretation to Item 4 /02.
Note 29To be treated as Suspense Items above. See interpretation to Item 8 /03.
Note 30See interpretations to Item 1 /20, /21, /22, /23, /24, /25 and /26.
Note 31See interpretation to Item 1 /05.
Note 32See interpretation to Item 1 /07.
Note 33See interpretation to Item 11 /01.
Note 34See interpretation to Item 11 /03.
Note 35If a Securities Borrowed matches a Fail to Receive of the same quantity and issue, both the credit and debit may be excluded. 1% of the contract value of Securities Borrowed which were allocated to Fail to Receive contracts and excluded from the Formula is deducted from net capital under the alternative method. See interpretation to Item 11 /03.
Note 36See interpretation to Items 11 /03 and 6 /01.
Note 37Unless it previously allocated to customer fail to deliver. See interpretation to Item 11 /03.
Note 38Unless in accordance with interpretation to Item 11 /03.
Note 391% of the market value of securities borrowed collateralized by LOCs shall be deducted from net capital. See interpretation to Item 11 /03.
Note 40See interpretation to Item 12 /01.
Note 41If a Fail to Deliver matches a Fail to Receive of the same quantity and issue, both the credit and debit may be excluded. 1% of the contract value of all Fail to Deliver items which were allocated to Fail to Receive contracts and excluded from the formula is deducted from net capital under the alternative method. See interpretation to Item 12 /07 and /08.
Note 42Credit must be included for unconfirmed items over 40 days old. See interpretation to Item 12 /04.
Note 43Provided the securities are negotiable and are in excess of possession or control requirements and the fail to deliver previously allocated to a credit item in the formula. See interpretation to Item 12 /08 and /081.

15c3-3a(General)/09 PAB Reserve Formula Allocation Chart

This PAB reserve formula allocation chart shows the relationship between the various allocable items and may be used in conjunction with the interpretations when an allocation is required to determine the debit and credit values includible in the PAB reserve formula computation.

A. CREDITS
  Include 
Short LocationLong AllocationCreditDebitNotes
Customer Bank Loan vs:
Customer LongNoNo 
Proprietary LongNoNo 
Non-Customer LongNoNo 
PAB Accounts LongNoYes 
Stock BorrowedNoNo 
Fail to DeliverNoNo 
Non-Customer Bank Loan vs:
Customer Long, Stock Borrowed or Fail to DeliverNoNo 
Non-Purpose Loan accountsNoNo 
Proprietary and Non-Customer accountsNoNo 
PAB Accounts LongYesYesNote 1
Proprietary Bank Loan vs:
Customer account longNoNo 
Fail to Deliver or Stock BorrowedNoNo 
Proprietary, Subordinated, General Partners, Directors, and Principal Officers Accounts LongNoNo 
PAB Accounts LongNoYes 
All other long allocationsNoNo 
Any Bank or Custody Location with Cross Lien Provisions vs:
Customer Account LongNoNo 
PAB Accounts LongYesYesNote 2
Collateral to Letter of Credit (LOC) or Collateral Pledged for OCC Customer Margin Requirements vs:
Customer Accounts LongNoNo 
Proprietary Qualified SecuritiesNoNo 
Non-Customer or Proprietary AccountsNoNo 
PAB Accounts LongYesYesNotes 8 and 9A
Collateral to Letter of Credit or Collateral Pledged for OCC PAB Margin Requirement vs:
Customer Accounts LongNoNo 
Proprietary Qualified SecuritiesNoYes 
Non-Customer or Proprietary AccountsNoNo 
PAB Accounts LongYesYesNotes 6, 7, 8, 9A
Collateral Pledged to Letter of Credit for Securities Borrowed vs:
Customer Accounts LongNoNoNote 12
Non-Customer or Non-Purpose Loan AccountsNoNoNote 13
PAB Accounts LongYesYesNote 3
Proprietary AccountsNoNo 
Collateral Pledged for Securities Borrowed vs:
Customer Accounts LongNoNoNotes 14, 15
Non-Customer or Non-Purpose Loan AccountsNoNoNote 15
PAB Accounts LongYesYesNote 4
Proprietary AccountsNoNo 
Securities Loaned vs:
Customer Accounts LongNoNo 
Fails to DeliverNoNo 
Securities BorrowedNoNo 
Non-Customer and Proprietary Accounts LongNoNo 
PAB Accounts LongYesYes 
Fails to Receive vs:
Customer Accounts LongNoNo 
Fails to DeliverNoNo 
Non-Customer Accounts LongNoNo 
PAB Accounts LongYesYes 
Proprietary Accounts LongNoNoNote 20
Securities BorrowedNoNo 
Proprietary and Non-Customer Shorts vs:
Customer Accounts LongNoNo 
Non-Customer Accounts LongNoNo 
PAB Accounts LongYesYesNote 5
Customer Short Position vs:
Customer LongNoNo 
Proprietary and Non-Customer Accounts LongNoNo 
PAB Accounts LongYesYes 
PAB Short Position vs:
Customer LongNoNo 
Proprietary and Non-Customer Accounts LongNoNo 
PAB Accounts LongYesYes 

 

B. OTHER CREDITS OR VALUES INCLUDIBLE REGARDLESS OF ALLOCATION
 Include 
 CreditNotes
Securities Borrowed Secured by an Irrevocable Letter of Credit Secured by Customer Margin SecuritiesNo 
Securities Borrowed Secured by an Irrevocable Letter of Credit Secured by PAB SecuritiesYesNote 3
Stock Dividends Receivable, Stock Splits and Other Distributions Over 30 Calendar Days OldNo 
Suspense Account Credits and Short Security Count, Unverified Short and Suspense Security Differences:
  Over 7 business days oldNo 
  Over 30 calendar days oldNo 
Transfer over 40 calendar days oldNo 
Prepaid Fails to ReceiveNo 
Unclaimed Dividends and Interest PayableNo 
All outstanding drafts payable to customers which have been applied against free or other credit balances and checks drawn in excess of bank balances (per firm records)No 
Drafts Payable to PABYes 
TEFRA Accounts PayableNo 
Accrued Interest Payable on Customer Credit BalancesNo 
Accrued Interest Payable on PAB Credit BalancesYes 

 

C. DEBITS
  Include 
Long PositionShort AllocationDebitCreditNotes
Securities Borrowed Collateralized By Cash, U.S. Treasury Bills, Notes, LOCs Secured by Proprietary Qualified Securities, or Any Other Acceptable Collateral as per (b)(3) vs:
Customer Accounts ShortNoNo 
Non-customer or Proprietary Accounts ShortNoNo 
PAB Accounts ShortYesYes 
Fails to ReceiveNoNo 
Customer Bank LoanNoNo 
Non-Customer or Proprietary Bank LoanNoNo 
Securities LoanNoNo 
Stock Dividend ReceivableNoNo 
TransferNoNo 
All Other Physical Control LocationsNoNo 
Securities Borrowed Secured by an Unsecured Irrevocable Letter of Credit, Unacceptable Collateral as per (b)(3) or Unsecured Borrows No*Note 39
Fails to Deliver Not Over 30 Calendar Days Old vs:
Customer accounts shortNoNo 
Non-customer or Proprietary Accounts ShortNoNo 
PAB Accounts ShortYesYes 
Fails to ReceiveNoNo 
Customer Bank LoanNoNo 
Proprietary and Non-Customer Bank LoanNoNo 
Securities LoanedNoNo 
TransferNoNo 
Other Physical Control Location for Not More Than 3 Business DaysNoNo 

* As allocated above.

NOTES REGARDING THE PAB RESERVE FORMULA ALLOCATION CHART

Note 1Include market value of the collateral up to the amount borrowed as a credit.
Note 2When a broker-dealer pledges PAB securities to a non-customer loan and also, has proprietary and/or customer loans with the same pledgee, it must assure itself that the pledgee does not have a lien upon non-customer collateral for any loan other than for PAB non-customers..
 If a cross lien exists and could place PAB securities at risk, there shall be included in the PAB formula the amount of the PAB loan, plus the lower of the value of PAB collateral in excess of the loan or the amount of loans for other than PAB.
Note 3Include the market value of the borrowed securities as a credit.
Note 4Include the market value of the pledged securities.
Note 5Include the market value of the short securities.
Note 6Letters of Credit Secured by Customer and Non-Customer Securities
 When a letter of credit, collateralized by both customer and non-customer securities, is deposited with OCC as margin, only the amount required for customers’ margin is included as a debit in the customer Reserve Formula. Therefore, the amount of margin required for market-maker accounts is included as a debit in the PAB Reserve Formula to the extent it is collateralized by customer and PAB securities. (The combined customer and non-customer margin requirement, up to the amount of the letter of credit, must be included as a credit in the customer’s Reserve Formula only).
Note 7OCC Margin Requirement Met by PAB Securities
 When PAB collateral is deposited with OCC to satisfy market-maker margin requirements, the actual amount of margin required is included in the Formula as a debit and a credit.
Note 8Letters of Credit Secured by PAB Securities
 Include as a credit, the amount of letters of credit which are collateralized by PAB securities and deposited with OCC, to the extent of the margin requirement at OCC, which is covered by such letters of credit.
Note 9Commingled Collateral as OCC Margin Deposit – (Rescinded, No. 03-2, March 2003)
Note 9ACommingled Collateral as OCC Margin Deposit
 When customer, non customer (which can include PAB) and qualified proprietary securities are commingled as margin on deposit with OCC the lesser of the customer margin requirement or the market value of the customers’ securities pledged as collateral should be included as a credit in the customer Reserve Formula. In addition, the lesser of the customers’ margin requirement or the total market value of the customers’ and qualified proprietary securities pledged as collateral should be included as a debit in the customer Reserve Formula.
 The market value of PAB securities pledged as collateral for the customers’ margin requirement should be included as a debit and a credit in the PAB Reserve Formula up to the OCC customer margin requirement less the debit included in the customer Reserve Formula.
Note 10Total PAB Debits
 When computing the minimum net capital requirement, PAB total debits would not be included.
Note 11Customer Concentration
 Note E(5) under SEA Rule 15c3-3a (Exhibit A) concerning customer concentration does apply to the PAB Reserve Formula. Note E(5) states that debit balances in margin accounts (other than omnibus accounts) should be reduced by the amount by which any single PAB debit balance exceeds 25% (to the extent such amount is greater than 50,000) of the broker-dealer’s tentative net capital (i.e., net capital prior to securities haircuts) unless the broker or dealer can demonstrate that the debit balance is directly related to credit items in the Reserve Formula. Related accounts (e.g. the separate accounts of an individual, accounts under common control or subject to cross guarantees) shall be deemed to be a single PAB account for purpose of this provision.
 /01 Determination of the Includible Amount of a PAB’s Concentrated Margin Debit Balance in the PAB Reserve Formula Customer Concentration
 A broker-dealer may utilize its PAB reserve formula allocation to determine the includible amount of a PAB’s concentrated margin debit balance that is related to a credit item in the PAB reserve formula.
 The broker-dealer’s allocation system must be able to determine any long security position underlying a PAB’s concentrated margin debit balance that allocates to a short security position underlying the related credit item in the PAB reserve formula.
 Credit items that have been included in the PAB reserve formula, which may be considered as relating to a PAB’s concentrated margin debit balance, are limited to those related to bank loan, securities loan, fail to receive, customer short, proprietary short, PAB short and non-customer short.
 Each credit item identified as relating to a PAB’s concentrated margin debit balance must have a related credit balance which is included in the PAB reserve formula, in order for the PAB’s concentrated margin debit balance to be includible in the PAB reserve formula.

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

15c3-3a(Item 1)

RESERVE FORMULA (EXHIBIT A ITEM 1); CUSTOMER CREDIT BALANCES

15c3-3a(Item 1)/01 Customer Credit Balances
Report free credit balances and other credit balances contained in customers’ security accounts. Also include:

  • Outstanding drafts payable to customers (SEA Rule 15c3-3a(Note A) (Exhibit A))
  • Checks drawn in excess of bank balances (interpretation 15c3-3a(Item 1)/20 (Exhibit A)).
  • Checks drawn on a credit line account (interpretation 15c3-3a(Item 1)/22 (Exhibit A)).
  • Overdrafts in bank account not otherwise excluded by interpretation.

When net capital is computed under the basic method and customers’ debit and credit balances are netted for the weekly formula computation (other than at month-end, see interpretation 15c3-3a(General)/01 (Exhibit A)) and that netting results in a credit, see interpretation 15c3-3a(Item 10)/06 (Exhibit A).

15c3-3a(Item 1)/02 Non-Regulated Commodity Accounts
Include the net balance due to customers in non-regulated commodity accounts, reduced by any deposits of cash or securities with any clearing organization or clearing broker in connection with the open contracts in such accounts.

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

15c3-3a(Item 1)/021 Netting Customers’ Non-Regulated and Regulated Commodity Accounts
The net balances determined in accordance with interpretation 15c3-3a(Item1)/02 (Exhibit A) may be further reduced by the deficit contained in a customer’s regulated commodity account to the extent of the equity contained in the same customer’s non-regulated commodity account.

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

15c3-3a(Item 1)/022 Customer Balances Related to Foreign Futures and Options Transactions
Any customer balances comprehended in the computation required by CFTC Regulation 30.7 need not be included in the formula.

(NYSE Information Memo 88-10, April 20, 1988)

15c3-3a(Item 1)/03 Partly Secured Accounts
See Item 10 /012 when a partly secured account has a credit balance.

When net capital is computed under the basic method and all customer balances are netted for the weekly formula computation, see Item 10 /06.

(SEC Letter to NYSE, December 9, 1975)

15c3-3a(Item 1)/04 Special Omnibus or Similar Accounts
When a special omnibus account maintained in compliance with the requirements of Section 10 of Regulation T or similar accounts carried on behalf of another broker-dealer is partly secured after applying current calls, i.e., outstanding not more than 5 business days, for margin, marks to the market or other required deposits, include the credit balance contained in such account, increased by the deficit after applying current calls. (See Note E(2).)

When net capital is computed under the basic method and all customers' balances are netted for the weekly formula computation, see Item 10 /06.

(SEC Release 34-13565, May 18, 1977) (NYSE Interpretation Memo 78-1, May 1978)

15c3-3a(Item 1)/05 TEFRA Accounts Payable
Taxes and interest withheld from customers' accounts which are payable to the government under the Tax Equity and Financial Responsibility Act are to be included in the formula until paid over to the Internal Revenue Service.

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

15c3-3a(Item 1)/06 Customer Payments Prior to Settlement Date
Credit balances received from customers prior to settlement date of purchase must be included as a credit in the formula and this treatment is not negated by segregation of the securities.

(SEC Letter to Gibraltar Securities, Inc., March 5, 1986) (NYSE Interpretation Memo 92-10, July 1992)

15c3-3a(Item 1)/07 Accrued Interest Payable on Customers’ Credit Balance
Interest payable to customers is accrued on a daily basis and periodically credited to each customer's account. The total of such amounts, if not already credited to the customers' accounts, should be included in Item 1 of the reserve computation.

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

15c3-3a(Item 1)/08 (Reserved)

15c3-3a(Item 1)/09 Retail Customer’s Purchasing Reverse Repurchase Agreements
If a broker-dealer enters into a hold in custody (HIC) repurchase agreement with a “retail” customer who had a pre-existing free credit balance with the broker-dealer, the liability of the broker-dealer will ordinarily be considered to be a free credit balance for purposes of SEA Rule 15c3-3. Customers that conduct their business with the broker-dealer on a delivery versus payment basis or customers with transactions that exceed $1 million contract value would not be considered “retail” customers for purposes of this interpretation. Include as a credit the contract value of hold in custody repurchase agreement(s) with “retail” customers who had pre-existing credit balances of less than $1 million prior to purchase. Open repurchase transactions with same customer, may be aggregated in determining the $1 million limit.

(SEC Staff to NYSE) (NYSE Information Memo 87-38, October 28, 1987)

15c3-3a(Item 1)/10 Hold-In Custody Reverse Repos Purchased By Customers Lacking Proper Documentation
The original contract value plus any marks to market is to be included in customer credit balances when there is no written agreement between the parties or when a written agreement exists but lacks notice to the customer that the provisions of The Securities Investor Protection Act of 1970 do not protect the counterparty to the repurchase agreement.

(SEC Release 34-24778) (NYSE Interpretation Memo 92-1, January 1992)

15c3-3a(Item 1)/11 Customers Purchasing Commercial Paper
Notes payable to customers in connection with the issuance of the broker-dealer’s own commercial paper may be excluded as credits in the reserve formula provided that adequate written disclosure is stated in the offering circular and on the confirmation as to the identity of the issuer and that these transactions are not covered by SIPC.

(SEC Staff to NYSE) (NYSE Interpretation Memo 92-1, January 1992)

15c3-3a(Item 1)/12 Principal Transactions with Customers
When a broker-dealer purchases securities as principal from its customer and the securities have not been resold, the credit balance due to the customer arising from his sale of securities to the broker-dealer may be excluded from the formula until the securities sold have been delivered by the customer.

When a broker dealer receives non negotiable securities purchased on a principal basis from its customer and the securities have not been resold, the credit balance in the customer account shall be excluded from the formula until the earlier of 30 calendar days after settlement date or the date appropriate papers are received that makes the securities negotiable.

(SEC Release 34-11497, June 26, 1975) (NYSE Interpretation Memo 92-10, July 1992)
(SEC Letter to Emanuel & Company, February 28, 1986) (NYSE Interpretation Memo 92-10, July 1992)

15c3-3a(Item 1)/13 Short Credits in Customers’ Accounts
Credit balances due to customers' arising from sales of securities which are offset by debit balances arising from purchases in non-customers' accounts can be excluded from the formula.

(SEC Staff to NYSE)

15c3-3a(Item 1)/14 Loans Payable
Amounts representing unsecured or secured loans payable, which are not related to securities transactions of the lender and which are evidenced by written agreements are excluded from the formula.

(SEC Letter to Midwest Stock Exchange, Inc., July 28, 1976) (NYSE Interpretation Memo 78-1, May 1978)

15c3-3a(Item 1)/15 Unsecured Payables to Subsidiaries
Unsecured payables to subsidiaries representing loans to the broker-dealer are excluded from the formula when they are not related to securities transactions.

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

15c3-3a(Item 1)/16 Unearned Prepaid Investment Advisory Fees
Unearned prepaid investment advisory fees that are taken into income when earned, with the unearned balance being deferred and subject to refund, are excluded from the formula.

(SEC Letter to A. R. Schmeidler & Co. Inc., Dec. 4, 1976) (NYSE Interpretation Memo 78-1, May 1978)

15c3-3a(Item 1)/17 Unearned Prepaid Customers’ Commissions
Unearned prepaid customers’ commissions that are refundable are excluded from the formula.

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

15c3-3a(Item 1)/18 Requirements for Including the Receipt of Customer Checks
Customer checks received by a broker-dealer for the account of the customer must be included in the firm's computation of reserve requirements on the day that they are received by the broker-dealer, its branch office or its agent (e.g. registered representative). Customer checks, though not yet deposited, are customer funds.

(SEC Letter to Marketing One Securities, Inc., December 9, 1992)
(NYSE Interpretation Memo 94-5, May 1994)

15c3-3a(Item 1)/19 (Reserved)
15c3-3a(Item 1)/20 Checks Drawn In Excess of Bank Balances
Checks drawn in excess of a bank balance per the records of the broker/dealer must be included in the formula; whether or not the amount is used for customer payments. However, certain exceptions, described herein may apply.

15c3-3a(Item 1)/21 Two Or More Accounts Carried By The Same Bank - (Rescinded)

(NYSE Interpretation Memo 02-7, August 2002)

15c3-3a(Item 1)/211 Two Or More Accounts Carried By The Same Bank
Where two or more accounts, carried by a bank, are in reality one account which are separated for purposes that are immaterial to SEA Rule 15c3-3 under the Act, the amount of checks drawn in one account to the extent offset by positive balances in the other accounts need not be taken as a credit to the reserve formula provided the broker-dealer has an agreement with the bank acknowledging that:

  1. except for bookkeeping and statement purposes, all such accounts are considered as one; and
  2. the bank is authorized and agrees to treat all such accounts as a single account and apply the balances in one or more such account to any other debits in any other such account without further advice or instruction.

In addition, an opinion needs to be rendered by outside counsel that the bank agreement is legally binding under banking and other relevant federal and state laws and the opinion should include the effect of bankruptcy law or other equitable distribution principles on the agreement.

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

15c3-3a(Item 1)/22 Checks Drawn On A Credit Line Account
The proceeds derived from writing checks to customers on credit line accounts (zero balance accounts) are included as a credit in the formula. However, unsecured firm borrowings from banks are not included in the formula provided they actually represent and are recognized by the banks as unsecured borrowings.

(SEC Letter to Shearson H.S. Inc., June 13, 1977) (NYSE Interpretation Memo 78-1, May 1978)

15c3-3a(Item 1)/23 Zero Balance or Overdraft Bank Accounts For Checks Issued to Vendors
Where a separate zero balance or overdraft checking account is maintained for payment of vendors’ invoices for proprietary purchases, employee payroll checks and checks paid to suppliers, the overdraft may be excluded from the formula provided:

  1. The checks are drawn on a separate and distinct bank account which is clearly unrelated to any account from which customers’ checks are drawn;
  2. Issuance of checks drawn on the account do not act to reduce a credit balance which would otherwise be included in the formula;
  3. It is clearly demonstrated and the bank acknowledges in writing that the bank does not have the right to offset with any other account or customers’ assets or collateral it may be holding for the broker-dealer; and
  4. The overdraft is included as Aggregate Indebtedness if the broker-dealer is computing net capital requirements under the AI method.

These accounts are not to be netted with other bank accounts and credit balances must be included in the Reserve Formula if any of the checks or drafts drawn on the account could be:

  1. Payable to customers or broker-dealers;
  2. Paid in connection with a securities transaction; or
  3. Deposited in another account unless only certified checks or wired funds are paid out of the receiving account.

(SEC Staff to NYSE) (NYSE Interpretation Memo 91-7, July 1991)

15c3-3a(Item 1)/24 Zero Balance or Overdraft Accounts Used in Connection With “Seg-Offset” Accounts
Overdrafts incurred in connection with “Seg-Offset” activities need not be included as credit items in the reserve formula computation under SEA Rule 15c3-3a (Exhibit A) provided:

  1. No checks or drafts drawn on these accounts are payable to customers or broker-dealers;
  2. No checks or drafts drawn on these accounts are paid in connection with securities transactions;
  3. No checks or drafts drawn on these accounts could be deposited in another bank account (the receiving account) unless only wired funds are paid out of such receiving account;
  4. Written assurance has been obtained from the bank, by the broker-dealer, that there are no cross liens to customer-related assets or collateral or any other accounts with the bank; and
  5. The overdrafts are carried on the books of the broker-dealer and otherwise treated as ordinary liabilities.

(NYSE Letter to SEC Staff, March 29, 1990) (NYSE Interpretation Memo 91-7, July 1991)

15c3-3a(Item 1)/25 Funds Wired From “Seg-Offset” Accounts
A “Seg-Offset” account is understood to be an account which is used as a cash management technique to obtain federal funds for a fee which is lower than prevailing interest rates, in amounts equivalent to amounts in customers’ segregated funds accounts with a bank. For example, through this technique, a broker-dealer leaves funds on deposit in a segregated account or Special Reserve Bank Account with a bank that permits the broker-dealer to withdraw federal funds from another account at the bank (the “Seg-Offset” account) in an amount equal to the segregated account or the Special Reserve Account deposits.

Further, the bank has no cross lien against the segregated account or the Special Reserve account for any overdraft in the “Seg-Offset” account. The broker-dealer covers the federal funds withdrawal with a clearing house check drawn on a zero-balance account at another bank.

Federal funds paid out of a “Seg-Offset” account by federal wire need not be included in the reserve formula computation under SEA Rule 15c3-3a (Exhibit A) as credit items provided:

  1. It is clearly demonstrated and the bank acknowledges in writing that the bank does not have the right to offset with any other account or customers' assets or collateral it may be holding for the broker-dealer; and
  2. The Special Reserve Bank Account must be free of lien and subject to all the requirements of SEA Rules 15c3-3 (e) and (g). No withdrawal entry may appear on the bank statement unless supported by a reserve computation.

(NYSE Letter to SEC Staff, March 29, 1990) (NYSE Interpretation Memo 91-7, July 1991)

15c3-3a(Item 1)/26 The Term “Any Other Accounts” Defined
Where it is required that broker-dealers obtain written assurances from the bank that there are no cross liens to customer-related assets or collateral or any other accounts with the bank, the term “any other accounts” refers to accounts that are used to pay down credits which would normally be included in the reserve computation, such as customer credits, customer-related fails etc. Under these circumstances “any other accounts” would include operating bank accounts and require appropriate “cross lien” documentation. Accounts used to write checks to customers that reduce customer credits are included in “any other accounts.” Firm bank loan collateral at the same bank is not considered a customer-related asset.

(SEC Staff to NYSE) (NYSE Interpretation Memo 92-1, January 1992)

15c3-3a(Item 1)/27 Customer Credit Balances Related to Deposits in a Special Trust or Agency Account
Customer credit balances related to deposits in a special trust or agency account utilized pursuant to SEA Rule 15c2-4(b)(1) are excluded from the Reserve Formula.

(SEC Staff of DMR to NASD, September 1983)

15c3-3a(Item 1)/28 Postdated Customer Checks
A broker-dealer that receives postdated checks from customers for trades that have not settled must book said payments to the customer accounts, and, if a credit balance results, include said credits in Item 1 of the Reserve Formula.

(SEC Staff of DMR to NASD, September 1983)

15c3-3a(Item 1)/29 Credit Balances Arising from Limited Partnership Unit Sale

A broker-dealer selling secondary limited partnership units where the transactions create customer credit balances is not required to include such credits in the Reserve Formula, provided:

  1. The broker-dealer, acting as agent or trustee for the persons who have the beneficial interest in the partnership unit, promptly deposits upon receipt the total purchase price of the transaction and the appropriate instruments of assignment in escrow, without interest, with a qualified bank escrow agent pending receipt of the comment of the general partner to the assignment.
  2. Should consent not be forthcoming within 45 days after confirmation of the transaction, promptly return the escrow deposits to the depositor.
  3. The qualified bank escrow agent holding the deposit must agree in writing to hold the escrow deposits for the persons having beneficial interest therein, and to transmit or return the deposits directly to persons entitled thereto when the appropriate event or contingency has occurred.

(SEC Staff of DMR to NASD, July 1986)

15c3-3a(Item 2)

RESERVE FORMULA (EXHIBIT A ITEM 2); CUSTOMER BANK LOANS

15c3-3a(Item 2)/01 Customer Bank Loans
Report monies borrowed from banks collateralized by securities carried for the account of customers.

15c3-3a(Item 2)/02 Letters of Credit Secured by Customers’ Securities, OCC Margin
Include, as required by Note B, the amount of Letters of Credit obtained by a member of Options Clearing Corporation which are collateralized by customers’ securities, to the extent of the member’s margin requirement at Options Clearing Corporation which is covered by such Letters of Credit.

(SEC Release 34-13565, May 18, 1977) (NYSE Interpretation Memo 78-1, May 1978)

15c3-3a(Item 2)/021 Letters of Credit Secured by Customer and Non-Customer Securities
When a letter of credit collateralized by both customer and non-customer securities is deposited with OCC as margin, the combined customer and non-customer margin requirement, up to the amount of the letter of credit must be included as a credit.

However, only the margin required for customers’ margin is included as a debit at Item 13.

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

15c3-3a(Item 2)/03 OCC Margin Requirement Met by Customers Securities
When customer available collateral is deposited with OCC to satisfy margin requirements the actual amount of margin required is included in the Formula as both a debit and a credit. Such deposit of securities is not considered a good control location.

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

15c3-3a(Item 2)/031 Commingled Collateral As Options Clearing Corp Margin Deposit - (Rescinded)

(NYSE Interpretation Memo 02-7, August 2002)

15c3-3a(Item 2)/032 Commingled Collateral As Options Clearing Corp Margin Deposit
When customer, non-customer and qualified proprietary securities are commingled as margin on deposit with OCC the lesser of the customer margin requirement or the market value of the customers’ securities pledged as collateral should be included as a credit in the reserve formula. In addition, the lesser of the customers’ margin requirement or the total market value of the customers’ and qualified proprietary securities pledged as collateral should be included as a debit in the reserve formula.

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

15c3-3a(Item 2)/033 OCC Margin Required for a Broker-Dealer Introducing Options on an Omnibus Basis
A broker-dealer that introduces its customers’ option transactions on an omnibus basis should include a debit and an offsetting credit in its reserve formula when customers’ securities are deposited as collateral with the carrying/clearing broker-dealer to satisfy the margin requirement from the carrying/clearing broker-dealer. The amount to be included as a debit and a credit in the reserve formula is the lesser of the customers’ margin requirement or the market value of the customers’ securities deposited as collateral with the carrying/clearing broker-dealer.

The introducing omnibus broker-dealer should include a debit in its reserve formula (without an offsetting credit) when cash and/or qualified proprietary securities are deposited as collateral with the carrying/clearing broker-dealer to satisfy the margin requirement from the carrying/clearing broker-dealer. The amount to be included as a debit in the reserve formula is the lesser of the customers’ margin requirement or the cash and/or the market value of qualified proprietary securities deposited as collateral with the carrying/clearing broker-dealer.

(SEC Staff to NYSE) (NYSE Interpretation Memo 05-8, April 2005)

15c3-3a(Item 2)/04 Letters of Credit Secured by Customers’ Securities, Collateralizing Securities Borrowed
Include as a credit item the market value of securities borrowed from any person when such securities borrowed are collateralized by letters of credit which are secured by customer margin securities.

(SEC Release 34-18737, May 13, 1982)

15c3-3a(Item 2)/05 Firm Bank Loans Secured by Non-Proprietary Securities
The market value of securities lodged in firm bank loan shall be included in the formula when the broker or dealer does not have a corresponding proprietary long position, or they do not allocate to the account of a general partner, a director or principal officer of the broker or dealer who is not a customer under SEA Rule 15c3-3(a)(1).

(SEC Letter to NYSE, May 5, 1981) (NYSE Interpretation Memo 81-3, July 1981)

15c3-3a(Item 2)/051 Amount to be Included
When non-proprietary securities are lodged in a firm bank loan, the amount to be included in the formula is the lesser of the market value of customers’ securities or the total amount of firm bank loans at the particular bank.

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

15c3-3a(Item 2)/06 Offset Debit for Customers’ Uncleared Checks Not Permitted
Uncleared customers’ checks may not be included as a debit item in the formula as a debit offset to bank loans which cannot be reduced (to obtain customers’ securities collateralizing firm bank loans) until the customers’ checks clear.

Such uncleared checks may, however, be deposited in a reserve bank account to satisfy a reserve deposit requirement. After clearance and a subsequent computation of the formula they may be withdrawn (if no longer required) and used to reduce the bank loan.

(SEC Letter to First Monmouth Securities Corp., June 13, 1984) (NYSE Interpretation Memo 92-10, July 1992)

15c3-3a(Item 2)/07 Customer Bank Loans Secured by Non-Customers’ Securities
When non-customers’ securities are included as collateral to a customer bank loan the total bank loan shall be included as a credit in the formula.

The related non-customer debit shall be excluded. In order to avoid a possible deposit requirement due to this situation a separate non-customer bank loan should be established in which event the non-customer bank loan and the non-customer debit would both be excluded from the formula.

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

15c3-3a(Item 2)/08 Principal Sales to DVP Customers
Where securities which have been sold as principal to deliver versus payment customers are lodged in a firm bank loan, the short market value is included in the formula rather than the loan value.

If the securities are placed in a customer bank loan, then the bank loan amount shall be included in the formula.

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

15c3-3a(Item 2)/09 Non-Purpose Loans
Include the amount of bank loans collateralized by securities carried long as margin for non-purpose loan accounts when a separate bank loan collateralized exclusively by non-purpose loan account securities has not been established.

Non-purpose loan receivables are not to be included as debit items in the formula.

(SEC Letter to NYSE, April 20, 1983) (NYSE Interpretation Memo 84-9, September 1984)

15c3-3a(Item 2)/10 Customers’ Securities Not To Be Subjected To Cross Liens
When a broker-dealer pledges customer securities to a customer loan and also has proprietary and/or non-customer loans with the same pledgee, it must assure itself that the pledgee does not have a lien upon customers collateral for any loan other than for customers.

If a cross lien exists and could place customers’ securities at risk, there shall be included in the formula the amount of the customer loan, plus the lower of the value of customer collateral in excess of the amount of the loan or the amount of the loans for other than customers.

The full market value of all customers’ collateral (including agreement to pledge collateral) within the possession and control of the lender shall be included if any of the loans or liabilities are for unspecified amounts or unlimited liabilities (as in the case of contingencies or guarantees).

The mere inclusion of additional credits in the formula computation will not serve to relieve any violation of the hypothecation Rules 8c-1 or 15c2-1. See interpretation 15c3-3(a)(1)/04.

(SEC Letter to NYSE, May 3, 1985)

15c3-3a(Item 2)/11 Customer Bank Loan Allocating to Stock Borrow
See interpretation 15c3-3a(Item 11)/031 (Exhibit A).

15c3-3a(Item 2)/12 Margin Related to Security Futures Products Deposited with a Clearing Agency or a Derivative Clearing Organization
The provisions of the interpretations under SEA Rule 15c3-3a(Item 2) (Exhibit A) related to the margin required and on deposit with the OCC for all option contracts written or purchased in customer accounts can be applied to the margin required and on deposit with a clearing agency or a derivatives clearing organization for all security futures products written, purchased or sold in customer security accounts under the provisions of SEA Rule 15c3-3a(Note G) (Exhibit A) for purposes of the reserve formula.

(SEC Staff to NYSE) (NYSE Interpretation Memo 05-8, April 2005)

15c3-3a(Item 3)

RESERVE FORMULA (EXHIBIT A ITEM 3); CUSTOMER SECURITY LOANS

15c3-3a(Item 3)/01 Customer Security Loans
Include monies received as collateral against the loan of securities including any deficits required by Note C (i.e., the amount by which the market value exceeds the value of collateral received), which are directly attributable to securities held long for customers.

See Item 3 /02 and /03 when an allocation method is required to determine which securities loans relate to customers.

15c3-3a(Item 3)/011 Stock Loan Deficits - Broker by Broker Basis
Stock loan deficits shall be determined on a broker-by-broker basis.

(SEC Release 34-13565, May 8, 1977) (SEC Staff to NYSE)
(NYSE Interpretation Memo 78-1, May 1978)

15c3-3a(Item 3)/012 Stock Loan Deficits Promptly Collected
Stock loan deficits may be excluded if the broker-dealer issues a mark to market call by 11:00 a.m. the business day following the computation and receives payment that day.

(SEC Letter to Bear, Stearns & Co., September 16, 1980)
(NYSE Interpretation Memo 81-9, December 1981)

15c3-3a(Item 3)/02 Securities Loaned Allocation Method
When it is impractical or unduly burdensome to determine which securities loans relate to securities held long for customers an appropriate allocation may be made on a conservative basis to accomplish maximum protection for customers.

Sample Allocation:

  • A determination shall be made of the total contract value of all securities loaned and any deficits on securities loaned;
  • Such amount shall be reduced by the contract value and deficits on securities loans which are not allocable to securities held long for customers (see Item 3 /03); and
  • The remaining amount shall be included in the formula. See Item 3 /012 for the treatment of stock loan deficits that are promptly collected.

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

15c3-3a(Item 3)/03 Securities Loans Not Allocable to Customers
Securities loans and deficits on securities loans allocable to the accounts shown below are not allocable to customers and shall not be included in the formula. All other allocations are deemed to be customers.

  • S/L vs. Non-Customer Accounts
  • S/L vs. Proprietary Accounts
  • S/L vs. Securities Borrowed

15c3-3a(Item 4)

RESERVE FORMULA (EXHIBIT A ITEM 4); CUSTOMER FAILS TO RECEIVE

15c3-3a(Item 4)/01 Customer Fails to Receive
Include the contract value of all securities failed to receive, and deficits on securities failed to receive outstanding more than 30 calendar days as required by Note D and /01, which are directly attributable to customers’ accounts or transactions.

See interpretation SEA Rule 15c3-3a(General) /03 (Exhibit A) and /06 when an allocation method is required to determine which fail to receive contracts relate to customers.

15c3-3a(Item 4)/011 Liquidating Deficits on Customer Fails to Receive
Deficits in customer fail to receive contracts over 30 calendar days old shall be determined on a contract by contract basis.

(SEC Release 34-13565, May 18, 1977)
(SEC Staff to NYSE) (NYSE Interpretation Memo 78-1, May 1978)

15c3-3a(Item 4)/02 Prepaid Fails to Receive
The market value of short securities positions resulting from prepaid fails to receive shall be included in the formula unless the prepaid short is located in a valid control location as determined by the SEC on appropriate application, in which event it shall not be included in the formula.

See interpretation 15c3-3(c)(7)/02 regarding Accommodation Transfers.

(SEC Letter to NASD, July 16, 1974)

15c3-3a(Item 4)/03 Possession or Control Requirement vs. Non-Customer Short Treated as Fail to Receive – (Rescinded)

(FINRA Regulatory Notice 15-25)

15c3-3a(Item 4)/04 Continuous Net Settlement Balances (CNS) – Fails to Receive
When computing the reserve formula calculations, broker-dealers must adjust any net credit balance payable to CNS to reflect the gross credit amounts representing the short market value of fails to receive and the gross debit amounts representing the long market value of fails to deliver.

The gross market value of fails to receive shall be included as a credit item in the reserve formula computation in accordance with the requirements of Rule 15c3-3a(Item 4) (Exhibit A). The gross market value of fails to deliver shall be included as a debit item in the reserve formula computation in accordance with the requirements of Rule 15c3-3a(Item 12) (Exhibit A).

(SEC Letter to Dupont, Glore Forgan, Inc., Feb. 27, 1973)
(SEC Staff to FINRA) (FINRA Regulatory Notice 13-44)

15c3-3a(Item 4)/05 Fail to Receive of Government Securities, Commercial Paper, Bankers Acceptances and Certificates of Deposit
Broker-dealers computing net capital under the alternative method shall exclude amounts payable for government securities, commercial paper, bankers acceptances and certificates of deposit not yet received from the issuer or its agent and any related debit items for three business days, as specified at subparagraph (f)(5)(iii) of SEA Rule 15c3-1.

(SEC Staff to NYSE)

15c3-3a(Item 4)/06 Fail to Receive Allocation Method
When it is impractical or unduly burdensome to determine which fails to receive relate to customers' accounts or transactions an appropriate allocation may be made on a conservative basis to accomplish maximum protection for customers.

Sample Allocation:

  • A determination shall be made of the total contract value of all fails to receive and liquidating deficits on fails to receive outstanding more than 30 calendar days;
  • Such amount shall be reduced by the contract value of fails to receive not allocable to customers, including the liquidating deficits on fails to receive outstanding more than 30 calendar days not allocable to customers (see Item 4 /07); and
  • The remaining amount shall be included in the formula.

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

15c3-3a(Item 4)/07 Fail to Receive Not Allocable to Customers
Fails to receive and liquidating deficits on fails to receive outstanding more than 30 calendar days allocable to the accounts shown below are not allocable to customers and shall not be included in the formula. All other accounts are deemed customers.

  • F/R vs. Non-Customer Accounts
  • F/R vs. Proprietary Accounts
  • F/R vs. Fail to Deliver or Securities Borrowed of the same quantity and issue when net capital is computed under the alternative method provided debits for fail to deliver and securities borrowed are also excluded from the formula and 1% of such debit values are deducted in the alternative net capital computation. Otherwise the fail to receive value shall be included in the formula.

15c3-3a(Item 4)/08 Reduction of Money Market Funds Payables by Amounts Receivable from Money Market Funds
Money Market fund payables resulting from customer purchases are includable in the Reserve Formula; however, the payables can be reduced by certain receivables from the same or different funds. See interpretation 15c3-3a(Item 10)/08 (Exhibit A).

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

15c3-3a(Item 4)/081 Netting of Money Market Fund Payables by Amounts Receivable from Money Market Funds
Money market fund payables resulting from customer purchases can be reduced by certain receivables from the same or different money market funds. A broker-dealer can net receivables and payables between the same family of money market funds, but cannot net receivables and payables between unrelated families of money market funds.

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

15c3-3a(Item 5)

RESERVE FORMULA (EXHIBIT A ITEM 5); CREDIT IN FIRM ACCOUNTS

15c3-3a(Item 5)/01 Credit in Firm Accounts - Amount to be Included
Include in the formula the market value of uncovered or partially covered short sales which are attributable to principal sales to customers.

(SEC Letter to NASD, July 16, 1974)

15c3-3a(Item 5)/02 Proprietary vs. Customer Allocation
When a broker-dealer uses an allocation method to determine proprietary vs. customer securities, include in the formula the short market value of proprietary securities which allocate to customer longs.

(SIA Transcript SEA Rule 15c3-3)

15c3-3a(Item 5)/03 Possession or Control Requirement vs. Non-Customer Short
When customers’ fully-paid or excess margin securities are attributable or allocable to short positions in non-customer accounts, such short market value shall be included in the customer reserve formula computation under SEA Rule 15c3-3a(Item 5) (Exhibit A).

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

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

15c3-3a(Item 6)

RESERVE FORMULA (EXHIBIT A ITEM 6); SHORT STOCK DIVIDENDS AND DISTRIBUTIONS

15c3-3a(Item 6)/01 Short Stock Dividends and Distributions
Include in the formula the short market value of stock dividends, stock splits and similar distributions outstanding over 30 calendar days.

(SEC Staff to NYSE)

15c3-3a(Item 7)

RESERVE FORMULA (EXHIBIT A ITEM 7); SHORT SECURITY DIFFERENCES

15c3-3a(Item 7)/01 Short Security Differences
Include in the formula the market value of short security count differences:

  • Over 30 calendar days old when net capital is computed under the basic method; or
  • Over 7 business days old when net capital is computed under the alternative method as required by SEA Rule 15c3-1(f)(5)(ii).

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

15c3-3a(Item 8)

RESERVE FORMULA (EXHIBIT A ITEM 8); SUSPENSE ACCOUNTS

15c3-3a(Item 8)/01 Suspense Accounts
Include in the formula the market value of short securities and credits (not to be offset by longs or by debits) contained in all suspense, difference, DK and similar accounts used to record “suspense” items:

  • Over 30 calendar days old when net capital is computed under the basic method; or
  • Over 7 business days old when net capital is computed under the alternative method, as required by SEA Rule 15c3-1(f)(5)(ii).

The phrase “credits ... Contained in all suspense, difference, DK and similar accounts used to record suspense items” includes all suspense credits and unclaimed dividend credits regardless of whether they have been identified as non-customer credits.

(SEC Staff to NYSE) (NYSE Interpretation Memo 78-1, May 1978)
(SEC Letter to Checkers Simon & Rosner, November 8, 1988) (NYSE Interpretation Memo 92-10, July 1992)

15c3-3a(Item 8)/02 Short Securities With Related Credit Balances
When there exists a short security suspense position and a related credit balance, include in the formula (in accordance with the timeframes stated at Item 8 /01) the greater of the market value of the short security or the related credit balance.

(SEC Staff to NYSE)

15c3-3a(Item 8)/03 Unclaimed Dividends and Interest Payable
Unclaimed cash dividends and interest payable shall be considered as suspense items and shall be included in the formula if over 30 calendar days old under the basic capital method or if over 7 business days old under the alternative capital method.

(SEC Staff to NYSE) (NYSE Interpretation Memo 84-4, July 1984)

15c3-3a(Item 9)

RESERVE FORMULA (EXHIBIT A ITEM 9); UNCONFIRMED TRANSFERS

15c3-3a(Item 9)/01 Unconfirmed Transfers
Include in the formula the market value of securities in transfer for more than 40 calendar days when the broker-dealer has not received from the issuer or transfer agent within such 40 day period:

  • A written acknowledgement that the securities are in the possession of the issuer or agent; or
  • A revalidation of the window ticket from the transfer agent.

(SEC Staff to NYSE)

15c3-3a(Item 9)/02 Confirmed Transfer
When an item of transfer is confirmed in writing within the 40 calendar day period following transmittal to the transfer agent or issuer, thereafter it shall not be included in the formula.

Note however, that SEA Rule 17a-13(b)(3) requires the verification of all securities in transfer over 30 days at least once each calendar quarter. Failure to obtain such confirmation requires that the item be treated as a short security difference. (See Item 7 /01.)

(SEC Letter to Stifel, Nicolaus & Co., Inc., April 27, 1987)

15c3-3a(Item 10)

RESERVE FORMULA (EXHIBIT A ITEM 10); CUSTOMER DEBIT BALANCES

15c3-3a(Item 10)/01 Customer Debit Balances
Determine the total of the net debit balances contained in customer’s cash accounts and margin accounts which are fully secured by salable securities, i.e., a ready market exists as stipulated by SEA Rule 15c3-1(c)(11) and there are no statutory, regulatory or contractual arrangements or other restrictions inhibiting the public offer or sale of the securities.

When net capital is computed under the basic method and customers’ debit and credit balances are netted for the weekly formula computation, see Item 10 /06.

15c3-3a(Item 10)/011 Drafts Receivable on Customer Debits
Include the debit in a related draft receivable account when immediate credit has not been received on draft shipments of securities purchased by customers when the debit in the customer's account for the purchase of the securities so drafted has been eliminated.

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

15c3-3a(Item 10)/012 Partly Secured Accounts
For a margin account which is partly secured after applying current margin calls outstanding and in the case of a margin account where a margin call is outstanding more than 5 business days, the amount which should be included in the Reserve Formula should be the debit balance in such account reduced (or if a credit balance, increased) by:

  1. The deficit in such account after the application of current margin calls outstanding; and
  2. The amount which results from applying the appropriate haircut, set forth in SEA Rule 15c3-1(c)(2)(vi) or (f), to the market value of the securities in the account.

With respect to a partly secured cash account, which has a transaction liquidating to a deficit and which is not current within the meaning of Regulation T of the Board of Governors of the Federal Reserve System or which has more than one extension thereunder, the amount included in the Reserve Formula should be the debit balance in the partly secured cash account reduced (or if a credit balance, increased) by:

  1. The deficit related to the transactions which are causing such deficit; and
  2. The amount which results from applying the appropriate haircut, set forth in SEA Rule 15c3-1(c)(2)(vi) or (f), to the market value of the securities transactions which are causing the deficit.

When net capital is computed under the basic method and all customers’ balances are netted for the weekly formula computation, see Item 10 /06.

(SEC Letter to NYSE, December 9, 1975) (SEC Staff to NYSE)

15c3-3a(Item 10)/0120 Customers’ Unsecured/Partly Secured Deficit Offset by Correspondent’s Deposits
A carrying broker-dealer does not have to reduce customers’ debits from the customer reserve formula computation arising from an introducing broker-dealer’s customers’ unsecured or partly secured deficits provided sufficient deposits were received from the introducing broker-dealer which can legally be applied to cover (fully secure) the applicable deficits. However, the amount of the introducing broker-dealer’s deposits maintained at the carrying broker-dealer must be included in the PAB reserve formula computation of the carrying broker-dealer.

(SEC Staff to NYSE) (NYSE Interpretation Memo 02-3, February 2002)
(SEC Staff to FINRA) (FINRA Regulatory Notice 15-25)

15c3-3a(Item 10)/013 Special Omnibus or Similar Accounts
When a special omnibus account maintained in compliance with the requirements of Section 10 of Regulation T or similar accounts carried on behalf of another broker-dealer is partly secured after applying current calls, i.e., outstanding not more than 5 business days, for margin, marks to the market or other required deposits, include the debit balance contained in such account, reduced by the deficit after applying current calls. (See Note E(2).)

When net capital is computed under the basic method and customers’ debit and credit balances are netted for the weekly formula computation. (See Item 10 /06).

(SEC Release 34-13565, May 18, 1977) (NYSE Interpretation Memo 78-1, May 1978)

15c3-3a(Item 10)/014 Accrued Interest Receivable
Include as a debit accrued interest receivable on customers’ fully secured margin account debit balances.

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

15c3-3a(Item 10)/015 Dividends and Interest Receivable from DTC
Include in Item 10, debit balances due from DTC representing dividends and interest receivable not outstanding for more than 5 business days which are allocable to credits in the formula, resulting from the firm’s crediting its customer account for the same dividends and interest.

(SEC Letter to NYSE, March 19, 1984) (NYSE Interpretation Memo 84-3, April 1984)

15c3-3a(Item 10)/016 Household Members, Relatives and Affiliated Persons of the B/D
Debit balances contained in the cash and margin accounts of household members and other persons related to principals of the broker-dealer, or contained in the accounts of affiliated persons of the broker-dealer shall be excluded, unless the broker-dealer can demonstrate that such debit balances are directly related to credit items in the formula. (See Note E(4) and Note E(5).)

When net capital is computed under the basic method and customers’ debit and credit balances are netted for the weekly formula computation, see Item 10 /06.

15c3-3a(Item 10)/017 Debit Balances in Excess of $50,000
In accordance with Note E(5) include in Item 10 the first $50,000 of the debit balance in a margin account that has a debit in excess of $50,000 of a single customer (other than in an omnibus account); in related accounts under common control of a single customer; or subject to cross guarantees, in which case the debit balances shall be aggregated.

The portion of the debit balance remaining shall also be included, provided the total amount included is not in excess of 25% of the broker-dealer's tentative net capital, i.e., the net capital computed in accordance with SEA Rule 15c3-1 prior to the application of securities haircuts; and

If any portion of the debit balance remains, i.e., the portion in excess of 25% of tentative net capital, it shall be excluded, unless the broker-dealer can demonstrate that the debit balance is directly related to credit items contained in the formula. (See Note E(5).)

(SEC Staff to NYSE)

15c3-3a(Item 10)/018 Customer and Non-Customer Interest in a Single Account

When both a “customer” and a “non-customer” have a participation interest in a single account with a debit balance, in accordance with Note E(6) include the percentage of the debit balance as follows:

Customer InterestAmount of Debit Included
Greater than 95%The entire debit
Between 50% and 95%% attributable to customer*
Less than 50%None*

* If the broker-dealer can demonstrate that the debit balance is directly related to credit items in the formula, the entire debit shall be included. (See Note E(5))

When net capital is computed under the basic method and customers’ debit and credit balances are netted for the weekly formula computation, see Item 10 /06.

15c3-3a(Item 10)/019 Partial Identification of Debits With Credits in The Formula
Debit balances in excess of 25% of the broker-dealer’s tentative net capital which are shown to be directly related to credits included in the formula computation may be considered as a reduction of the non-allowable debit amount. Where this application reduces the remaining debit below 25% of tentative net capital, the balance of the debit may also be included in the computation.

“Debit balances in excess of 25% of tentative net capital, (TNC)” refers to the total debit balance in a single customer's account and not the portion of the debit in excess of 25% of the broker-dealer’s TNC.

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

15c3-3a(Item 10)/02 Estate Account Debit Balances
Debit balances in Estate accounts are to be included or excluded in accordance with Note E(6).

(SEC Staff to NYSE) (NYSE Interpretation Memo 92-10, July 1992)

15c3-3a(Item 10)/03 Accrued Trade Date Commissions
Commissions receivable accrued on a trade date basis by broker-dealers using settlement date accounting shall not be included in Item 10 in the Reserve Formula.

(SEC Staff to NYSE)

15c3-3a(Item 10)/031 Debit Balances In Customers’ Spot Commodity Accounts
Debit balances in fully secured spot commodity accounts of customers shall not be included in Item 10.

However, such debits may be used to reduce a credit balance of the same customer reportable at Item 1. (See Item 1 /02, /021 and /022.)

(SEC Letter to E.F. Hutton & Company, Inc., August 25, 1980) (NYSE Interpretation Memo 84-3, April 1984)

15c3-3a(Item 10)/032 Non-Purpose Loans
Non-purpose loan receivables shall not be included.

When a separate bank loan is collateralized by securities held as margin for a non-purpose loan, the bank loan credit is not reportable at Item 2. (See Item 2 /05.)

(SEC Letter to NYSE, April 20, 1983) (NYSE Interpretation Memo 84-9, September 1984)

15c3-3a(Item 10)/033 Unsecured Customer Short Positions
For firm longs allocable to unsecured customer shorts, both sides are excluded from the formula.

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

15c3-3a(Item 10)/034 Accrued Custodial Fees Receivable - IRA Accounts
Accrued custodial fees receivable for IRA custody accounts may be included under Item 10 provided the individual fees are secured by and chargeable to each related IRA custody account.

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

15c3-3a(Item 10)/04 Debit Balances in Margin Accounts - Sample Computation

Debit balances in margin accounts shall be reduced by the amount by which a specific security (other than an exempted security) which is collateral for margin accounts exceeds in aggregate value 15 percent of all securities which collateralize all margin accounts receivable; provided, however, the required reduction shall not be in excess of the amounts of the debit balance required to be excluded because of this concentration rule. A specific security is deemed to be collateral for a margin account only to the extent it represents in value not more than 140 percent of the customer debit balance in a margin account.

Example

Total margin debits$50,000,000
Margin securities (140%)70,000,000
15% of margin securities10,500,000
Total value of stock XYZ included in margin securities12,000,000
Excess of value over 15% limit1,500,000
Reduction in margin debits ($1,500,000 divided by 140%)1,071,429

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

15c3-3a(Item 10)/05 (Reserved)

15c3-3a(Item 10)/06 Weekly Computation - Netting of Customers’ Debit and Credit Balances
When net capital is computed under the basic method and customers’ debit and credit balances are netted for the weekly formula computations (other than at month-end, see interpretation 15c3-3a(General)/01 (Exhibit A)), a net debit balance shall be reduced (and a net credit balance at Item 1 of this formula computation shall be increased) by the amount determined at the prior month-end that reflected customers’ credit and debit balances separately, for the following:

  • The reduction required for customers’ unsecured debits, accounts doubtful of collection [see interpretation SEA Rule 15c3-3a(General)/01) (Exhibit A)] and partly secured accounts (see Item 10 /012);
  • The reduction required because deficits exist in special omnibus accounts or similar accounts [see Item 10 /013 and SEA Rule 15c3-3a(Note E)(2) (Exhibit A)];
  • The reduction required because an account with a debit balance includes a participation interest of a “non-customer” [see SEA Rule 15c3-3a(Note E)(6) (Exhibit A)];
  • The reduction required for household members and other persons related to principals or affiliated persons of the broker-dealer [see SEA Rule 15c3-3a(Note E)(4) (Exhibit A)];
  • The reduction required because a single customer’s debit balance exceeds 25% of the broker-dealer's tentative net capital [see SEA Rule 15c3-3a(Note E)(5) (Exhibit A)];
  • The reduction required because of concentrated collateral for margin debits [see SEA Rule 15c3-3a(Note E)(1) (Exhibit A)]; and
  • The 1% required reduction of aggregate debits [see SEA Rule 15c3-3a(Note E)(3) (Exhibit A)];

(SEC Staff to NYSE)

15c3-3a(Item 10)/07 Debit Balances in Customers’ Accounts Collateralized by Control or Restricted Securities
Debit balances in customers’ accounts collateralized by control or restricted securities may only be included in the Reserve Formula computation to the extent they are secured by securities that can be publicly sold. Broker-dealers will bear the burden of proof in demonstrating that the control or restricted securities can be publicly sold. FINRA may require a legal opinion where the value of such securities is a material amount.

If an account is partially secured after the application of this interpretation, interpretation 15c3-3a(Item 10)/012 (Exhibit A) (Partly Secured Accounts) should be applied to determine the includable amount of the debit balance in the Reserve Formula computation.

(SEC Staff to NYSE) (NYSE Interpretation Memo 92-1, January 1992)
(SEC Staff to FINRA) (FINRA Regulatory Notice 21-27)

15c3-3a(Item 10)/08 Customer Redemptions of Money Market Funds
Debit balances in customers’ accounts arising from prepayments made by a broker-dealer on behalf of customers which are expected to be covered the next day upon settlement of such customers' redemptions, are treated as receivable from the fund and is not to be included as a debit in the Reserve Formula. This applies even if the broker-dealer maintains the money market fund position long in the customer's account, and the customer’s account is credited for the redemption on settlement date. However, the debit may serve to reduce certain credit balances. (See interpretation 15c3-3a(Item 4)/08 (Exhibit A).)

The term “prepayments” would include the actual payment of funds to or on behalf of customers in the form of a check or wire (e.g., credit card charges or checks written by customers), which are covered by customers' instructions to redeem their money market fund position.

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

15c3-3a(Item 10)/081 Netting of Money Market Fund Payables by Amounts Receivable from Money Market Funds
Money market fund payables resulting from customer purchases can be reduced by certain receivables from the same or different money market funds. A broker-dealer can net receivables and payables between the same family of money market funds, but cannot net receivables and payables between unrelated families of money market funds.

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

15c3-3a(Item 10)/09 Credit Extended Upon Exercise of Employee Stock Option
When a broker-dealer exercises an employee stock option for a customer, it must have acknowledgement from the issuer that a freely transferable, readily salable and marketable security in negotiable form will be promptly delivered to the broker-dealer within 15 business days after exercise notice is given to the issuer (when acknowledgment is given by telephone, the condition should be restated in the transmittal to the issuer). The exercise shall be subject to the following:

  1. When the security to be received from the exercise has been sold and is not received from the issuer within 15 business days after notice of exercise has been given, the position shall be subject to a cash margin deficiency charge computed without allowing any value for the security not received and is subject to the buy-in provisions under SEA Rule 15c3-3(m) unless an extension of time is requested and approved under SEA Rule 15c3-3 (n);
  2. When the security to be received from the exercise has not been sold and is not received within 15 business days after notice of exercise has been given, any related debit balance shall be treated as an unsecured debit.

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

15c3-3a(Item 10)/10 Term Debits in Customers’ Accounts Collateralized by Securities Subject to Restrictions on Use
A margin debit balance in a customer account that is not payable on demand (a “term debit”) may only be included in the Reserve Formula computation to the extent it is secured by securities that the broker-dealer carrying the account may use without restriction to obtain cash or funding while the term debit is outstanding.

If a term debit in an account is partially secured after the application of this interpretation, interpretation 15c3-3a (Item 10)/012 (Exhibit A) (Partly Secured Accounts) should be applied to determine the includable amount of the term debit in the Reserve Formula computation.

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

15c3-3a(Item 11)

RESERVE FORMULA (EXHIBIT A ITEM 11); SECURITIES BORROWED FOR CUSTOMER TRANSACTIONS

15c3-3a(Item 11)/01 Securities Borrowed for Customer Transactions
Include in the formula the contract value of securities borrowed from any person to effectuate short sales by customers and to make delivery on customers' securities failed to deliver, or securities borrowed that allocate to customers accounts. Borrowed securities must be fully secured by cash, “qualified securities” or a secured letter of credit to be includible in the Reserve Formula. SEA Rule 15c3-1 (c)(2)(iv)(G) requires a net capital deductions equal to 1% of the securities borrowed collateralized by an irrevocable letter of credit under both the basic and alternative methods of net capital computations.

If securities borrowed are collateralized by a letter of credit that is secured:

  1. By proprietary securities, such securities shall be “qualified securities”; or
  2. By customer margin securities, the value of the borrowed securities shall also be included in the formula as a credit at Item 2.

Securities borrowed from customers that do not comply with the requirements of subparagraph (b)(3) of SEA Rule 15c3-3 shall not be included in the formula and any securities borrowed from institutions or other customers shall be held in possession or control until returned to the lender.

(SEC Release 34-18737, May 13, 1982) (SEC Staff to NYSE)

15c3-3a(Item 11)/02 Securities Borrowed Allocation Method
When it is impractical or unduly burdensome to determine which securities borrowed relate to customers transactions an appropriate allocation may be made on a conservative basis to accomplish maximum protection for customers.

Sample Allocation:

  • A determination shall be made of the total contract value of all securities borrowed which are fully secured by deposits of collateral as stated at Item 11 /01;
  • Such amount shall be reduced by the contract value of securities borrowed which are not allocable to customers (see Item 11 /03); and
  • The remaining amount shall be included in the reserve formula.

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

15c3-3a(Item 11)/03 Securities Borrowed Not Allocable to Customers
Securities borrowed allocable to the locations shown below are not allocable to customers and shall not be included in the formula. SEA Rule 15c3-1(c)(2)(iv)(G) requires a net capital deductions equal to 1% of the securities borrowed collateralized by an irrevocable letter of credit under both the basic and alternative methods of net capital computations.

  • S/B vs. Non-Customer Accounts
  • S/B vs. Proprietary Accounts
  • S/B vs. Fail to Receive of the same quantity and issue when net capital is computed under the alternative method provided credits for fails to receive of the same quantity and issue “matched” against fails to deliver and securities borrowed are also excluded from the formula and 1% of the securities borrowed and fail to deliver debit values are deducted in the alternative net capital computation. Otherwise the securities borrowed value shall be included in the formula.
  • S/B vs. Stock Dividends Receivable
  • S/B vs. Securities Loaned
  • S/B vs. Transfer unless the transfer item had previously allocated to a customer fail to deliver in which event the market value of the securities borrowed shall be included in the formula. (Note that the market value of unconfirmed transfer items over 40 calendar days old must be included as a credit in the reserve formula at Item 9.)
  • S/B vs. All Other Physical Control Locations unless it can be demonstrated that the securities were borrowed:
    1. To complete a delivery arising from a customer related fail to receive or a customer's short position;
    2. The borrowed securities were received too late in the day to be used or returned;
    3. The borrowed securities were actually used for the purpose for which they were borrowed and returned to the lending broker-dealer the business day following receipt;
    4. Once the treatment is elected it is consistently applied and documented proof is retained for at least three years.

In which event such securities borrowed may be treated as allocable to customers and included in the formula at contract value.

(SEC Staff to NYSE) (NYSE Interpretation Memo 85-5, May 1985)

15c3-3a(Item 11)/030 Returning Securities Borrowed Focusing Around Bank Holidays
In determining the includable debit items in the reserve formula related to securities borrowed which allocate versus physical control locations, a broker-dealer can return borrowed securities on Tuesday in lieu of Monday if it is unable to process the return because securities exchanges are open on Monday but it is also a domestic or foreign bank holiday.

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

15c3-3a(Item 11)/031 Securities Borrowed versus Bank Loan
The market value of securities borrowed that allocate to bank loan should be included both as a debit and a credit in the reserve formula. Further, if the stock borrow allocates to a customer bank loan, the market value to be included as a credit is in addition to the amount of the customer bank loan balance.

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

15c3-3a(Item 11)/04 Banks and Institutions are Customers
Banks and financial institutions, other than broker-dealers, are defined as customers for purposes of SEA Rule 15c3-3. However if securities are borrowed from them and the appropriate securities borrowed agreements are on file which includes the language contained in SEA Rule 15c3-3(b)(3)(i), (ii), (iii) and (iv), then the securities positions should be allocated as securities borrowed. If the appropriate securities borrowed agreements are not on file or the agreements lack the needed language the securities should be allocated as customers' fully paid securities with no debit included in the formula.

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

15c3-3a(Item 11)/041 Federal Reserve Bank as a Non-Customer - (Rescinded)

(FINRA Regulatory Notice 21-27)

15c3-3a(Item 12)

RESERVE FORMULA (EXHIBIT A ITEM 12); FAIL TO DELIVER OF CUSTOMER SECURITIES

15c3-3a(Item 12)/01 Fail to Deliver of Customer Securities
Include the contract value of securities failed to deliver not more than 30 calendar days old which are directly attributable to customers’ accounts or transactions.

See interpretation SEA Rule 15c3-3a(General)/03 (Exhibit A) and interpretation SEA Rule 15c3-3a(Item 12)/07 (Exhibit A) when an allocation method is required to determine which fail to deliver contracts relate to customers.

15c3-3a(Item 12)/011 Fail to Deliver of Customer Securities - Aged Items
Include the contract value of specific fail to deliver securities shown below not more than 120 calendar days old (reduced by the applicable haircut percentage, adjusted for mark to market, computed in accordance with subparagraph (c)(2)(ix) of SEA Rule 15c3-1, the net capital rule) which are directly attributable to fail to receive contract values includible at Item 4 of the formula relative to the following securities:

  • Municipal securities or securities issued or guaranteed by the United States or any of its agencies; or
  • A “so-called” zero or stripped bond relating to one of those securities.

See interpretation SEA Rule 15c3-3a(General)/03 (Exhibit A) and interpretation SEA Rule 15c3-3a(Item 12)/071 (Exhibit A) when an allocation method is required to determine which fail to deliver contracts relate to customers.

(SEC Letter to NYSE, August 12, 1988) (NYSE Interpretation Memo 88-18, October 1988)

15c3-3a(Item 12)/012 Repriced Contracts Under NSCC’s RECAPS Program
Broker-dealers participating in the National Securities Clearing Corporation’s Reconfirmation and Pricing Service (RECAPS) Program may treat the RECAPS’s settlement date as the date of the fail for aging purposes and treat the RECAPS’s price of the contract as the reportable contract value rather than the original price of the trade.

(SEC Letter to NSCC, December 22, 1987)

15c3-3a(Item 12)/02 Drafts Receivable on Fails to Deliver
Report as Fail to Deliver the debit balance contained in a related draft receivable account when the fail to deliver has been eliminated, and immediate credit has not been received on shipments with draft attached to other broker-dealers.

15c3-3a(Item 12)/03 Continuous Net Settlement Balances (CNS) – Fails to Deliver
When computing the reserve formula calculations, broker-dealers must adjust any net debit balance receivable from CNS to reflect the gross debit amounts representing the long market value of fails to deliver and the gross credit amounts representing the short market value of fails to receive.

The gross market value of fails to deliver shall be included as a debit item in the reserve formula computation in accordance with the requirements of Rule 15c3-3a(Item 12) (Exhibit A). The gross market value of fails to receive shall be included as a credit item in the reserve formula computation in accordance with the requirements of Rule 15c3-3a(Item 4) (Exhibit A).

(SEC letter to Dupont, Glore Forgan, Inc., February 27, 1973)
(SEC Staff to FINRA) (FINRA Regulatory Notice 13-44)

15c3-3a(Item 12)/04 Fail to Deliver Securities in Transfer
When a fail to deliver exists due to securities not in good deliverable form being sent to transfer after the sales proceeds is paid to the customer, it may be included in the formula, provided:

  • It is not more than 30 calendar days old; and
  • The appropriate and necessary papers have been obtained and attached to such securities in transfer.

(SEC to Midwest Stock Exchange Inc., May 25, 1977) (NYSE Interpretation Memo 78-1, May 1978)

15c3-3a(Item 12)/05 Free Shipments of Mutual Funds
Free shipments of mutual funds which give rise to an unsecured receivable may be included in the formula as fail to deliver for not more than seven business days from the date of shipment.

(SEC Staff to NYSE)

15c3-3a(Item 12)/06 Free Shipments to Broker-Dealers
Free shipments to broker-dealers to satisfy a customer related fail which gives rise to an unsecured receivable shall not be included in the formula as a debit item.

(SEC Letter to NASD, July 16, 1974)

15c3-3a(Item 12)/07 Fail to Deliver Allocation Method
When it is impractical or unduly burdensome to determine which fails to deliver not more than 30 calendar days old relate to customers transactions an appropriate allocation may be made on a conservative basis to accomplish maximum protection for customers.

Sample Allocation:

  • A determination shall be made of the total contract value of all fails to deliver not more than 30 calendar days old;
  • Such amount shall be reduced by the contract value of fails to deliver not more than 30 calendar days which are not allocable to customers (see Item 12 /08); and
  • The remaining amount shall be included in the reserve formula.

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

15c3-3a(Item 12)/071 Fail to Deliver Allocation Method - Aged Items
When it is impractical or unduly burdensome to determine which aged fail to deliver securities not more than 120 calendar days old relate to securities includible as fail to receive at Item 4 of the reserve formula (see specifics at Item 12 /011):

  • A determination shall be made of the total contract value of all fails to deliver between 31 and 120 calendar days old of municipal securities, securities issued or guaranteed by the United States or any of its agencies and “so-called” zero or stripped bonds which, based on an appropriate allocation made on a conservative basis to accomplish maximum protection for customers, are allocable to fails to receive includible at Item 4 of the reserve formula;
  • Such amount shall be reduced by the applicable haircut percentage, adjusted for mark to market, computed in accordance with subparagraph (c)(2)(ix) of Rule 15c3-1, the net capital rule; and
  • The remaining amount shall be included in the reserve formula.

(SEC Letter to NYSE, August 12, 1988)

15c3-3a(Item 12)/08 Fail to Deliver Not Allocable to Customers
Fails to deliver not more than 30 calendar days old allocable to the locations shown below are not allocable to customers and shall not be included in the reserve formula.

  • F/D vs. Non-Customer Accounts
  • F/D vs. Proprietary Accounts
  • F/D vs. Fail to Receive of the same quantity and issue when net capital is computed under the alternative method provided credits for fails to receive of the same quantity and issue “matched” against fails to deliver and securities borrowed are also excluded from the reserve formula and 1% of the securities borrowed and fail to deliver debit values are deducted in the alternative net capital computation. Otherwise the fail to deliver shall be included in the reserve formula.
  • F/D vs. Stock Dividends Receivable
  • F/D vs. Transfer over 30 calendar days old
  • F/D vs. Short Security Count, Confirmation and Suspense Differences
  • F/D vs. Physical Control Locations unless negotiable securities are in the broker-dealers physical possession and are in excess of possession or control requirements for not more than three business days, in which event the fail to deliver may be included in the reserve formula.

15c3-3a(Item 12)/081 Fail to Deliver vs. All Other Physical Control Locations
When fails to deliver to a broker-dealer or clearing corporation allocate to a box location, the broker-dealer may elect to include the contract value of the failed to deliver in the reserve formula provided:

  1. It can be demonstrated that the failed to deliver arose from a customer sale transaction. As an alternative, a broker-dealer may elect to include a percentage of fails to deliver that allocate to the box that is equal to the ratio of customer fails to deliver, includable in the reserve formula, to total fails to deliver. A new ratio is to be determined whenever another reserve formula calculation is implemented;
  2. The security is negotiable and is excess of possession or control requirements for not more than three (3) business days; and
  3. Documented proof of the above procedures is retained for at least three years.

(SEC Staff to NYSE) (NYSE Interpretation Memo 92-10, July 1992)
(SEC Staff to NYSE) (NYSE Interpretation Memo 95-3, May 1995)

15c3-3a(Item 12)/09 Foreign Issued and Settled Securities Fail to Deliver
Broker-dealers may, on the filing of a written notice with its designated examining authority of its intention and maintenance in its records of a schedule of the current settlement cycle of each country in which it trades, use the foreign settlement date of foreign issued and settled securities as the customary settlement cycle in the particular country. In those instances where the settlement cycle is on a “seller’s option basis”, the settlement date must be a date no more than thirty (30) days from the trade date.

In addition, broker-dealers may include as a debit foreign issued and settled failed to deliver securities contracts outstanding more than 30 days past the customary settlement date that allocate to either failed to receive contracts or other includible credits provided:

  1. The aged failed to deliver security is a foreign issued and settled equity security traded on an exchange, or
  2. A foreign issued and settled debt security in Australia, Austria, Belgium, Canada, Denmark, the Federal Republic of Germany, Finland, France, Hong Kong, Italy, Japan, Luxembourg, Malaysia, Mexico, the Netherlands, New Zealand, Norway, Portugal, Singapore, South Africa, Spain, Sweden, Switzerland, and the United Kingdom;
  3. The aged failed to deliver is reduced on a mark-to-market basis thirty (30) days after the customary settlement date by an amount computed in accordance with paragraph (c)(2)(ix) of Rule 15c3-1, the net capital rule. For purposes of this calculation, broker-dealers are not required to apply paragraph (c)(2)(vii) of Rule 15c3-1; and
  4. The fail to deliver security contract is not outstanding more than sixty (60) calendar days past the customary settlement cycle in the foreign country or, if the settlement cycle is on a “seller’s option basis”, more than ninety (90) days from the trade date.

The SEC will monitor this program to assure that the procedures outlined function in a manner consistent with the objectives of SEA Rules 15c3-3 and 17a-13 which requires the quarterly count of securities.

(SEC Letter to Securities Industry Association, August 9, 1990)
(NYSE Interpretation Memo 90-7, September 1990)

15c3-3a(Item 12)/10 Receivable from Money Market Funds Due to Customer Redemptions
When broker-dealer records a receivable from money market funds on the day before settlement date of customer redemptions, the resulting debit is not includable in the Reserve Formula. However, the debit may serve to reduce certain credit balances.

See interpretation 15c3-3a(Item 4)/08 (Exhibit A).

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

15c3-3a(Item 13)

RESERVE FORMULA (EXHIBIT A ITEM 13); MARGIN REQUIRED BY OCC

15c3-3a(Item 13)/01 Margin Required by Options Clearing Corporation
Include in the formula the amount of margin required and on deposit with the Options Clearing Corporation for all option contracts written or purchased in customer accounts. Note F stipulates that such margin shall be represented by cash, proprietary qualified securities and letters of credit collateralized by customers’ securities.

Unsecured letters of credit and proprietary securities not qualified under paragraph (a)(6) of SEA Rule 15c3-3 shall not be included in the reserve formula.

(SEC Release 34-13565, May 18, 1977) (NYSE Interpretation Memo 78-1, May 1978)

15c3-3a(Item 13)/011 OCC Margin Requirement Met by Customers Securities
When customer available collateral is deposited with OCC to satisfy margin requirements the actual amount of margin required is included in the Formula as both a debit and a credit. Such deposit of securities is not considered a good control location.

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

15c3-3a(Item 13)/012 Commingled Collateral As Options Clearing Corp Margin Deposit - (Rescinded)

(NYSE Interpretation Memo 02-7, August 2002)

15c3-3a(Item 13)/013 Commingled Collateral As Options Clearing Corp Margin Deposit
When customer, non-customer and qualified proprietary securities are commingled as margin on deposit with OCC the lesser of the customer margin requirement or the market value of the customers’ securities pledged as collateral should be included as a credit in the reserve formula. In addition, the lesser of the customers’ margin requirement or the total market value of the customers’ and qualified proprietary securities pledged as collateral should be included as a debit in the reserve formula.

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

15c3-3a(Item 13)/02 Restricted Letters of Credit Collateralized by Proprietary Securities
Include in the formula restricted letters of credit secured by proprietary “qualified” securities (under SEA Rule 15c3-3(a)(6)) limited, however, to the extent of:

  • The net margin required for all options contracts in customers’ accounts; and
  • The net margin requirement not met by other qualified margin.

(SEC Letter to CBOE, March 14, 1975)

15c3-3a(Item 13)/03 Letters of Credit Secured by Customer’ Securities
Include in the formula the amount of letters of credit obtained by a member of Options Clearing Corporation which are collateralized by customers’ securities not required to be in possession or control, to the extent of the member’s customers margin requirement. The collateral securities are not in the possession or control of the broker-dealer.

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

15c3-3a(Item 13)/031 Letters of Credit Secured by Customer and Non-Customer Securities
When a letter of credit collateralized by both customer and non-customer securities is deposited with OCC as margin, only the amount required for customers’ margin is included as a debit.

The combined customer and non-customer margin requirement, up to the amount of the letter of credit, must be included as a credit at Item 2.

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

15c3-3a(Item 13)/04 OCC Margin Required From Introducing Firms – (Rescinded)

(NYSE Interpretation Memo 05-8, April 2005)

15c3-3a(Item 13)/041 OCC Margin Required for a Broker-Dealer Introducing Options on an Omnibus Basis
A broker-dealer that introduces its customers’ option transactions on an omnibus basis should include a debit and an offsetting credit in its reserve formula when customers’ securities are deposited as collateral with the carrying/clearing broker-dealer to satisfy the margin requirement from the carrying/clearing broker-dealer. The amount to be included as a debit and a credit in the reserve formula is the lesser of the customers’ margin requirement or the market value of the customers’ securities deposited as collateral with the carrying/clearing broker-dealer.

The introducing omnibus broker-dealer should include a debit in its reserve formula (without an offsetting credit) when cash and/or qualified proprietary securities are deposited as collateral with the carrying/clearing broker-dealer to satisfy the margin requirement from the carrying/clearing broker-dealer. The amount to be included as a debit in the reserve formula is the lesser of the customers’ margin requirement or the cash and/or the market value of qualified proprietary securities deposited as collateral with the carrying/clearing broker-dealer.

(SEC Staff to NYSE) (NYSE Interpretation Memo 05-8, April 2005)

15c3-3a(Item 14)

RESERVE FORMULA (EXHIBIT A ITEM 14); MARGIN RELATED TO SECURITY FUTURES PRODUCTS

15c3-3a(Item 14)/01 Margin Related to Security Futures Products Deposited with a Clearing Agency or a Derivative Clearing Organization
The provisions of the interpretations under SEA Rule 15c3-3a(Item 13) (Exhibit A) related to the margin required and on deposit with the OCC for all option contracts written or purchased in customer accounts can be applied to the margin required and on deposit with a clearing agency or a derivatives clearing organization for all security futures products written, purchased or sold in customer security accounts under the provisions of SEA Rule 15c3-3a(Note G) (Exhibit A) for purposes of the reserve formula.

(SEC Staff to NYSE) (NYSE Interpretation Memo 05-8, April 2005)