SEC Rule 15c3-3 - The Customer Protection Rule

SEC Rule 15c3-3 - The Basics

The purpose of Rule 15c3-3 is to ensure that in the event a broker-dealer must be liquidated that it will have sufficient assets to meet obligations to customers for securities and funds. To accomplish this the rule has two basic provisions - possession or control and the customer reserve formula.

Possession or Control
This provision requires that broker-dealers, unless exempted, must promptly obtain, and thereafter maintain the physical possession or control of all fully paid securities and excess margin securities carried for the account of customers.

The Reserve Formula
This provision requires that a broker-dealer, unless exempted, must maintain a "special reserve bank account for the exclusive benefit of customers" and at all times maintain a balance therein computed in accordance with a formula set forth in the rule.

Generally, firms that do hold customer securities and or funds or do not do business with the public are exempt from the provisions of the rule. (See Rule 15c3-3, section k for actual language of the rule)