Sep. 19, 2023
I strongly support the Proposed Rule to enhance the protections of Exchange Act Rule 15c3-3, also known as the Customer Protection Rule, as it is a vital step to safeguard customer funds in the event of a broker-dealer's financial failure. This Proposal aims to ensure broker-dealers maintain a reserve of funds or qualified securities equal to the net cash owed to customers, and we believe it is long overdue. The primary objective of the Customer Protection Rule is to guarantee that customer property held by a failed broker-dealer is sufficient to meet customer claims. To achieve this, the rule mandates broker-dealers with custody of customer securities and cash to maintain a special reserve account at a bank. The amount held in this account is determined by a computation of the net cash owed to customers, ensuring that customer funds are protected. Currently, the rule requires broker-dealers to calculate the necessary reserve deposit weekly. However, this approach has a significant drawback. Broker-dealers may receive substantial cash inflows between calculations, leading to potential mismatches between the cash owed to customers and the funds in the reserve account. Such mismatches pose a risk of financial failure, putting customer funds in jeopardy. The Proposal addresses this issue by increasing the frequency of these calculations to daily, significantly reducing the risk of mismatches between funds owed to customers and those in the reserve account. This reduction not only safeguards customers but also reduces the reliance on the Securities Investor Protection Act (SIPA) and the Securities Investor Protection Corporation (SIPC) fund in the event of a broker-dealer's failure. While the Customer Protection Rule has been effective for many years, it must adapt to evolving market dynamics. Therefore, we strongly recommend adopting the Proposal's requirement for daily net cash calculations and expedited deposits when needed. Furthermore, we propose extending this requirement to all broker-dealers, regardless of their size, as all customers deserve equal protection. The history of the Customer Protection Rule dates back to the 1970s when it was introduced in response to market challenges. However, technological advancements and the changing landscape of financial markets necessitate updates to ensure continued investor protection. The Proposal is a crucial step in this direction, strengthening the financial resilience of broker-dealers. In conclusion, we fully endorse the Proposed Rule and its daily computation requirement as a vital measure to enhance customer protection. We urge the Commission to consider extending this requirement to all broker-dealers to provide consistent safeguards to all investors.