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Frequently Asked Questions Concerning the COVID-19 Pandemic and the Broker-Dealer Financial Responsibility Rules

April 22, 2020

Division of Trading and Markets

June 2, 2020

The Division of Trading and Markets (“Division”), U.S. Securities and Exchange Commission (“Commission”), has prepared the following responses to questions about certain provisions of the broker-dealer financial responsibility rules during the COVID-19 pandemic, and expects to update from time to time the staff’s responses to additional questions. These responses represent the views of the staff of the Division of Trading and Markets. They are not a rule, regulation, or statement of the Commission. The Commission has neither approved nor disapproved this content. These responses, like all staff guidance, have no legal force or effect: they do not alter or amend applicable law, and they create no new or additional obligations for any person.

For Further Information Contact: Michael A. Macchiaroli, Associate Director, at (202) 551-5525; Thomas K. McGowan, Associate Director, at (202) 551-5521; Randall W. Roy, Deputy Associate Director, at (202) 551-5522; Raymond A. Lombardo, Assistant Director, at (202) 551-5755; or Timothy C. Fox, Branch Chief, at (202) 551-5687, Office of Financial Responsibility, Division of Trading and Markets, Securities and Exchange Commission, 100 F Street, NE, Washington DC 20549-7010.

Broker-Dealer Net Capital with respect to Participation in Federal Reserve Money Market Mutual Fund Liquidity Facility 2020

Q: Does a broker-dealer participating in the Federal Reserve Money Market Mutual Fund Liquidity Facility (MMLF) have to take capital charges for securities purchased from a money market mutual fund and pledged to the Federal Reserve?

A: The Staff would not recommend enforcement action to the Commission against a broker-dealer participating in the Federal Reserve Money Market Mutual Fund Liquidity Facility (MMLF) if the broker-dealer does not take capital charges for securities purchased from a money market mutual fund and pledged to the Federal Reserve pursuant to the MMLF, if:

  1. The broker-dealer purchases securities that are eligible for the MMLF (collectively, “MMLF eligible securities”);
  2. The broker-dealer promptly delivers the MMLF eligible securities to a Federal Reserve Bank (“FRB”) and receives cash in return in an amount no less than the purchase price;
  3. The term of the loan transaction between the FRB and the broker-dealer is until the maturity date of the collateral pledged to the FRB;
  4. The loan transaction between the broker-dealer and the FRB is non-recourse (i.e., without recourse to the broker-dealer) and there is no requirement for the broker-dealer to deliver any additional margin to the FRB; and
  5. The loan transaction otherwise meets all the terms and conditions set forth in the MMLF as those terms and conditions may be modified from time to time by the Federal Reserve.[1]

Prompt Transmission of Customer Checks under 15c3-3(k)(2)

Q: May broker-dealers have additional time to promptly transmit customer checks under paragraph (k)(2) of Rule 15c3-3?

A: FINRA and SEC staff understand that broker-dealers operating under the exemptions in paragraph (k)(2) of Rule 15c3-3 may be unable to access their premises and therefore may be delayed in forwarding customer checks due to the COVID-19 pandemic during April, May, or June. Accordingly, SEC staff will not recommend enforcement action if, during April, May, or June, broker-dealers in this situation take additional time to transmit customer checks provided:

  • the firm transmits customer checks as promptly as is practicable under the current circumstances,
  • broker-dealers that are unable to access their offices to transmit checks take reasonable steps to notify customers of alternative ways to fund their respective accounts (e.g., sending checks directly to the clearing broker-dealer, or funding the account online) and that the processing of their checks may be delayed due to the COVID-19 pandemic, and
  • the broker-dealer notifies the SEC’s Office of Compliance Inspections and Examinations by email at OCIE-COVID@sec.gov and the broker-dealer’s FINRA Risk Monitoring Analyst of the nature of the problem it will have in promptly forwarding customer checks and the steps the broker-dealer has taken to notify customers.

In the event that steps to contain the COVID-19 pandemic continue past June, the SEC staff will work with broker-dealers to evaluate whether additional measures may be appropriate.

Quarterly Securities Count of Physical Certificates

Q: May broker-dealers have additional time to conduct the quarterly securities count of physical certificates required by Rule 17a-13?

A: FINRA and SEC staff understand that some broker-dealers will be delayed in conducting the quarterly securities count as it relates to physical certificates due to the inability of broker-dealer personnel to gain access to premises due to the COVID-19 pandemic. Therefore, broker-dealers may be unable to conduct a physical securities count during April, May, or June. Accordingly, the SEC staff would not recommend enforcement action against a broker-dealer if such broker-dealer does not count physical securities in a quarterly securities count during April, May, or June, and if such broker-dealer:

  • notifies the SEC’s Office of Compliance Inspections and Examinations by email at OCIE-COVID@sec.gov and notifies the broker-dealer’s FINRA Risk Monitoring Analyst of the nature of the problem it will have conducting a physical count and an estimate of the number and value of physical certificates that cannot be counted; and
  • makes and retains a book-keeping summary of the movements of physical certificates that are received or delivered and were not counted during the impacted period to assist the firm in performing an accurate count once the impacted period passes.

In the event that steps to contain the COVID-19 pandemic continue past June, the SEC staff will work with broker-dealers to evaluate whether additional measures may be appropriate.


[1] See Office of the Comptroller of the Currency, Federal Reserve System, and Federal Deposit Insurance Corporation, Regulatory Capital Rule: Money Market Mutual Fund Liquidity Facility, 85 FR 16232 (Mar. 23, 2020); see also Money Market Mutual Fund Liquidity Facility (providing terms and conditions of the MMLF) (available at: https://www.federalreserve.gov/newsevents/pressreleases/files/monetary20200320b1.pdf).

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