Expected in mid-2024, the proposed changes to the US Securities and Exchange Commission (SEC) Customer Protection Rule 15c3-3 require 50+ firms to calculate reserve requirements for customer and proprietary accounts of broker-dealers (PAB) daily and, as a result, maintain sufficient cash and/or qualified securities in the designated Special Reserve Bank Accounts as of each new computation date – shifting from weekly to daily will be a significant change.
Existing 15c3-3 reserve calculations and deposit processes are intensive, deadline-driven, and must be performed on a conservative basis; firms often provide a substantial deposit cushion.
Because computations are performed only once each week, broker-dealers are unable to adjust reserve accounts to reflect intra-week activity. Additionally, and in contrast to the SEC’s Notice of Proposed Rulemaking (NPR) estimate of only 2.5 hours, the current process of executing computations requires a significant number of person days to timely complete. This often leads to working extensive hours.
The process involves:
- Handling large-volume end-of-week data feeds from the stock record and other disparate sources
- Allocating the stock record in a conservative manner
- Making many adjustments that, for example, arise from completed reconciliations, price adjustments, inaccurate data, and which are often manually driven by exchanging PDFs, spreadsheets, or emails թ Running/re-running allocations and reserve computations results based on such adjustments
- Compiling the computation results by integrating balances, allocations, and other mandatory items often through manual inputs to spreadsheets
- Depositing/withdrawing funds to the Special Reserve Bank Account(s) by 10:00 am on the next business day following the computation date. Missing the deadline, requires firms to report a technical or hindsight deficiency to the regulators.
Until now, this process may have been sustainable. However, with the anticipated shift to daily reporting, institutions must find a way to make this now laborious, manually driven process more compressed and repeatable.
Complicated and recursive reserve calculations
These computations involve complex logic, huge volumes of data, allocation rules defined in terms of priorities, and alignment with the institution’s operating model, making the change from weekly to daily calculations very challenging. Firms attempting to produce daily reserve calculations while relying upon existing processes may make significant errors that cause customers to be inadequately protected, and result in regulatory violations and costly fines for the institutions themselves. Without automating data ingestion, allocations, adjustments, compilations, and reserve calculation processes, firms’ ability to accurately perform their daily calculations is at risk.