SEC Rule 15c3-3: Possession or Control

Rule 15c3-3 requires that "a broker or dealer shall promptly obtain and shall thereafter maintain the physical possession or control of all fully-paid and excess margin securities carried by a broker or dealer for the account of customers."

Securities under the control of a broker-dealer include securities:

• held at a clearing corporation if they may be delivered to the broker-dealer without requirement of the payment of money and the broker-dealer's books and records identify the customers entitled to the securities
• are carried for the account of a customer in a special omnibus account in the name of the customer's broker dealer at another broker-dealer has instructed the carrying broker-dealer to maintain physical possession or control free of lien
• which are bona fide items of transfer (generally have been sent to transfer within the previous forty days or have been acknowledged in writing by the transfer agent)
• in custody of foreign depository, clearing agency, or bank which the SEC has approved as a satisfactory control location
• in the custody or control of a bank (as defined), and delivery does not require payment of money and the bank has acknowledged in writing that the securities are not subject to any lien, or claim
• which are in transit between offices of the broker-dealer for five business days or less, and 
• other locations that the SEC, upon application, may designate as satisfactory control locations.
  

Excess Margin Securities means those securities carried in a customer's securities accounts having a market value in excess of 140% of the customer's net debit balance in such accounts.

When a customer's account contains more than one security, a broker-dealer may choose, at its option, which security (securities) comprise excess margin securities.

When calculating excess margin securities, the debit balance is exclusive of any credit balance in a bona fide short account after marking the short position(s) to the market.

Broker-dealers identify fully-paid and excess margin securities by issuing "seg" or "lock-up" instructions which are memoranda entries in the books and records. A system that facilitates the "revision" of these instructions on a daily basis (i.e. changes the identity of excess margin securities based on an allocation formula) is called a "fluid" segregation system. As long as revisions do not violate or flout the intent of the rule, they are permitted.

Instructions to reduce to possession or control fully-paid or excess margin securities must be issued within prescribed time frames. For purchases, instructions must be issued on or before the business day following settlement date, or business day following actual date of payment (whichever is later).