SEC Studies Proposed Broker-|Dealer Responsibility Rules

     WASHINGTON (CN) – The Securities and Exchange Commission is reviewing consumer protection amendments proposed in March 2007.



     The proposed amendments would enhance consumer protections under the SEC’s net capital, customer protection, books and records, and notification rules.
     The SEC wants to require broker-dealers to extend the same customer protections to clients that also are broker-dealers as they are required to provide for retail customers, including segregation of customer funds and securities in excess of any short positions or debits ,and to recalculate the surplus on a daily basis.
     To make sure brokers are presenting the public with an accurate accounting of their net capital balance, the proposed amendments would require them to include any costs removed from their balance sheet through a cost-sharing agreement with a third party in calculation of their net capital.
     Large brokers would be required to document their internal risk management controls designed to assist in analyzing and managing market, credit, liquidity and operational risk, under a proposed amendment to the books and records rule. While many large broker-dealers already must document risk management controls under the Sarbanes-Oxley Act, SEC rules would extend to private broker-dealers not covered under the act.
     Citing the 2001 failure of MJK Clearing Inc. as the result of undisclosed loans against securities, the SEC has proposed to require broker-dealers providing stock loaning services to notify the SEC whenever the total amount of money payable against all securities it has loaned or put up against a repurchase agreement exceeds 2,500 percent of the firm’s tentative net capital requirement.
     The SEC is extending the comment period due to changes in the market and the amount of time that has passed since the original comment period ended.

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