Extension of Time Requests Relating to New SEA Rule 15c3-3(d)(4)
Regulatory Extension (REX) System Update
Extension of Time Requests Relating to SEA Rule 15c3-3(d)(4)
|Referenced Rules & Notices
SEA Rule 15c3-3(d)(4)
SEA Rule 15c3-3(n)
Regulatory Notice 10-28
FINRA is updating the Regulatory Extension (REX) system1 to enable firms to file extension of time requests relating to new SEA Rule 15c3-3(d)(4) as adopted by the SEC in July 2013.2 Firms may file such requests beginning April 2, 2014, by completing the currently available online request form that is accessible by logging in to the REX system via the FINRA Firm Gateway. Firms should note, however, that the REX system will not be able to accept extension of time requests relating to Rule 15c3-3(d)(4) that are submitted via batch file process.3
Questions concerning this Notice should be directed to:
Background & Discussion
In July 2013, the SEC adopted new paragraph (d)(4) under SEA Rule 15c3-3, which, among other things, requires a broker-dealer to take prompt steps to obtain physical possession or control over securities of the same issue and class as those included "on the broker's or dealer's books or records that allocate to a short position of the broker or dealer or a short position for another person, excluding positions covered by paragraph (m) [of Rule 15c3-3], for more than 30 calendar days."4
The SEC staff has stated that the 30-calendar day period specified in paragraph (d)(4) begins to run when a broker-dealer identifies a segregation deficit in fully paid and excess margin securities that allocates to a short position (e.g., when the deficit is created).5 Paragraph (d)(4) of Rule 15c3-3 is triggered if the segregation deficit persists for 30 consecutive calendar days without cure.6 Further, the SEC staff has stated that brokerdealers are not required to buy-in securities and, instead, may borrow securities to meet the requirements of Rule 15c3-3(d)(4).7 The SEC also adopted an amendment to paragraph (n) of SEA Rule 15c3-3 to permit FINRA under specified conditions to grant an extension of the 30-calendar day period for purposes of paragraph (d)(4) under the rule.
REX System Update
Beginning April 2, 2014, firms may file extension of time requests relating to new Rule 15c3-3(d)(4) by completing the currently available online request form that is accessible by logging in to the REX system via the FINRA Firm Gateway. Firms may submit the extension of time requests on either the first or second business day following the 30th calendar day from the date the deficit under Rule 15c3-3(d)(4) is created. Firms should note that the REX system will not be able to accept extension of time requests relating to Rule 15c3-3(d) (4) that are submitted via batch file process. FINRA will monitor the volume and nature of extension of time requests and may at a future date modify the REX system to enable firms to submit such requests via batch file process using File Transfer Protocol (FTP) or Secure File Transfer Protocol (SFTP). Firms that currently submit their extension of time requests exclusively via batch file process must ensure that they have an active user ID and password to be able to access the online REX system. To ensure they have an active user ID and password to access the online REX system, firms should contact their designated Super Account Administrator (SAA) as soon as possible prior to April 2, 2014.
Firms are encouraged to review the status of each extension of time request immediately after it is submitted through the online REX system interface and on the firm's daily extension report provided by FINRA (see the "Available Reports" section below). An extension of time request that is denied due to incomplete or inaccurate information may be eligible for reconsideration if corrected and resubmitted via the online REX system by the close of business on the second business day after the 30th calendar day of the paragraph (d)(4) deficit.
File Format and Data Elements Required for Extension of Time Requests Relating to SEA Rule 15c3-3(d)(4)
Following are the data elements for extension of time requests relating to new SEA Rule 15c3-3(d)(4):
Firms will have access via FINRA Firm Gateway to reports FINRA makes available that will include information on all the extension of time requests a firm submits and their associated data elements. Firms will also be able to query the REX system for information on all extension of time requests that are granted, denied or rejected.
Member firms that encounter technical problems, or otherwise require assistance, should contact the FINRA Gateway Call Center at (301) 869-6699.
1 FINRA introduced the REX system in August 2010. See Regulatory Notice 10-28 (June 2010) (Extension of Time Requests).
2See Securities Exchange Act Release No. 70072 (July 30, 2013), 78 FR 51824 (August 21, 2013) (Financial Responsibility Rules for Broker-Dealers).
3 FINRA may implement a batch file process capability for purposes of extension of time requests in connection with Rule 15c3-3(d)(4) at a future date. FINRA will announce the implementation in a Regulatory Notice (or similar communication).
4 The rule provides that the 30-day time period will not begin to run with respect to a syndicate short position established in connection with an offering of securities until the completion of the underwriter's participation in the distribution as determined pursuant to Rule 100(b) under the SEC's Regulation M.
5See Question and Answer 4 in SEC Division of Trading and Markets, "Frequently Asked Questions Concerning the Amendments to Certain Broker-Dealer Financial Responsibility Rules" (March 6, 2014) (SEC Staff FAQs).
6 The SEC staff has further stated that, for purposes of aging deficits that began on or prior to March 3, 2014, broker-dealers may consider March 3, 2014, as "Day 1." See note 5.
7See Question and Answer 5 in the SEC Staff FAQs.