Subject: S7-11-23: Webform Comments from Cory
From: Cory
Affiliation:

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.