Modernization of S.E.C. broker-dealer financing rules

(a)

Rule revision required

Not later than 90 days after the date of enactment of this Act, the Securities and Exchange Commission, pursuant to its authority under section 15(c) of the Securities Exchange Act of 1934 (15 U.S.C. 78o(c)), shall revise Rules 15c3–1, 15c3–3, and 15c2–4 (17 C.F.R. 240.15c3–1, 240.15c3–3, and 240.15c2–4) to provide for the comparable treatment of securities issued by qualified money market funds with the treatment of other low-risk securities and deposits under such rules, and the expanded use of securities issued by qualified money market funds for financing by brokers and dealers. (b)

Required Revisions

In making the revisions required by subsection (a), the Commission shall revise the requirements— (1)under Rule 15c3–1 relating to net capital, by not requiring, in the computation of net capital (or any other capital requirement based on value-at-risk or similar financial models or systems) any deduction for assets of the broker or dealer invested in redeemable securities issued by one or more qualified money market funds; (2)under Rule 15c3–3 relating to custody and use of customers’ securities— (A)to permit a broker or dealer to use redeemable securities issued by one or more qualified money market funds as collateral in complying with any requirement regarding physical possession or control of fully paid or excess margin securities borrowed from any person under terms no less favorable than the treatment afforded to any other collateral that the Commission permits under Rule 15c3–3(b)(3)(iii)(A) (17 C.F.R. 240.15c3–3(b)(3)(iii)(A)) or any successor rule, or by order; and (B)to permit a broker or dealer to— (i)deposit redeemable securities issued by one or more qualified money market funds in any required special reserve account under terms no less favorable than the treatment afforded to any other qualified security (as such term is defined in Rule 15c3–3(a)(6) (17 C.F.R. 240.15c3–3(a)(6)) or any successor rule, or by order; and (ii)post as collateral or deposit in any required special reserve account redeemable securities issued by one or more qualified money market funds by pledging such securities through the facilities of a clearing agency registered under section 17A(b) of the Securities Exchange Act of 1934 (15 U.S.C. 78q–1(b)); and (3)under Rule 15c2–4 in connection with the underwritings to which Rule 15c2–4(b) applies— (A)permit a broker or dealer that has obtained funds through the underwriting or distribution of securities— (i)to invest such obtained funds pending the specified event or contingency in redeemable securities issued by one or more qualified money market funds and to deposit such obtained funds or redeemable securities in a separate bank account; and (ii)to transmit such obtained funds to a bank that has agreed to hold such obtained funds in escrow; (B)permit the bank to which such obtained funds are transmitted pursuant to subparagraph (A)(ii) to invest such obtained funds pending the specified event or contingency in redeemable securities issued by one or more qualified money market funds; and (C)for the purposes of subparagraphs (A) and (B), permit the broker, dealer, or bank to invest, redeem, pledge, or receive the pledge of such obtained funds or such redeemable securities through the facilities of a clearing agency registered under section 17A(b) of the Securities Exchange Act of 1934 (15 U.S.C. 78q–1(b)). (c)

Definition of qualified money market fund

For purposes of the rule revisions required under this Act, the term qualified money market fund shall be defined by the Commission in such rule revisions, but shall include any open-end management company registered under section 8 of the Investment Company Act of 1940 (15 U.S.C. 80a–8)— (1)which is generally known as a “money market fund”; (2)which has received the highest money market fund rating from a nationally recognized statistical rating organization; (3)which has agreed to redeem fund shares in cash, with payment being made no later than the business day following a redemption request by a shareholder (except in the event of an unscheduled closing of Federal Reserve Banks or the unscheduled closing of one or more national securities exchanges registered under section 6 of the Securities Exchange Act of 1934 (15 U.S.C. 78f); and (4)which has adopted a policy to notify its shareholders of— (A)any change in its rating, not later than 30 days after the effective date of such change; and (B)any change in its policy to redeem fund shares in cash no later than the business day following a redemption request by a shareholder as required by paragraph (3), not less than 60 days prior to such change taking effect (except in the event of an unscheduled closing of Federal Reserve Banks or the unscheduled closing of one or more national securities exchanges registered under section 6 of the Securities Exchange Act of 1934 (15 U.S.C. 78f)).