reported on Line 2170. Similarly, for each broker-dealer, Total Debits are calculated as the sum of the
  average monthly amount of customer debits reported on Line 4472 and the average monthly amount of PAB debits
  reported on Line 2230.

    Table 3 displays the broker-dealers that reported positive customer
or PAB credits in 2022 into groups based on the size of their average
monthly total customer and PAB credits (averaged over January 2022 to
December 2022).\128\
---------------------------------------------------------------------------

    \128\ The grouping is based on the average monthly amount of
customer credits reported on Line 4430 and the average monthly
amount of PAB credits reported on Line 2170.

                                         Table 2--Carrying Broker-Dealers by Size of Average Total Credits, 2022
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                         Total      Total customer credits, $MM         Total PAB credits, $MM       Total credits, $MM
                                              Number     assets  ---------------------------------------------------------------------------------------
                                                          ($B)      Number      Mean      Median     Number      Mean      Median      Mean      Median
--------------------------------------------------------------------------------------------------------------------------------------------------------
>$0-100MM.................................         81      127.1         81       14.8        2.1         18        0.4          0       15.3        2.4
$100-250MM................................         18        101         18      133.3      120.3         12        4.3          0      137.6      128.6
$250-500MM................................          8      148.1          8      374.7      394.9          3        8.6          0      383.3      401.1
$500MM-1B.................................          9      206.6          9      593.8      566.5          7       98.0       29.6      691.8      667.6
$1-5B.....................................         18      352.5         18     2056.7     1868.1         16      127.5        2.9     2184.2     1871.4
$5-10B....................................          7      189.7          7     5779.7     5352.5          7      820.0       62.3     6599.6     5892.1
>=$10B....................................         21     3362.1         21    51312.0    23941.5         19     7307.7       84.5    58619.8    29261.2
                                           -------------------------------------------------------------------------------------------------------------
    Total \a\.............................        162    4,487.1        162    7,203.5       84.7         82    1,003.5        0.0    8,207.0       95.1
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ Table excludes carrying broker-dealers with zero reported credits in 2022.

    The proposed daily computation would apply only to carrying broker-
dealers whose average total credits are above the proposed $250 Million
Threshold. Therefore, the Commission estimates that, based on data for
January 2022 through December 2022, the scope of affected entities was
63 carrying broker-dealers, which held 86.4 percent of aggregate total
credits of all carrying broker-dealers.
    The number of affected carrying broker-dealers may vary month to
month since a 12-month rolling average is used for the proposed $250
Million Threshold. To provide information on how the number of entities
may thus vary over time, Figure 1 displays the number of affected
broker-dealers for a sequence of 12-month rolling averages

beginning with January 2022 and extending through May 2023.\129\
---------------------------------------------------------------------------

    \129\ Figure created from monthly FOCUS Reports, from January
2022 through May 2023. The first 12-month computation period is
January 2022 to December 2022, the second period is February 2022
through January 2023, and so on. The total number of broker-dealers
that reported positive total credits in each of the six rolling
periods shown in Figure 1 equaled 162, 162, 161, 161, 162 and 162,
respectively.
[GRAPHIC] [TIFF OMITTED] TP18JY23.005

    As shown in Figure 1, the number of affected carrying broker-
dealers varied monthly from 60 to 63 over the period from January 2022
through May 2023. There was little variation, however, in the identity
of the affected carrying broker-dealers. The same fifty-nine carrying
broker-dealers met the threshold in each month, and from one to four
additional broker-dealers met the threshold in any given month. In
total, over this period, 63 different carrying broker dealers would
have been affected.\130\
---------------------------------------------------------------------------

    \130\ Only in one case did a carrying broker-dealer within the
top-60 fall below the $250 Million Threshold from one period to the
next (leading to the decline from 63 to 62 carrying broker-dealers).
---------------------------------------------------------------------------

    With respect to the frequency of computation, based on the January
2022 to December 2022 period (12-month period), Table 4 displays the
number of broker-dealers performing their computations daily, weekly,
and monthly in each size category for average total credits.\131\
---------------------------------------------------------------------------

    \131\ Data from monthly FOCUS Reports filed for the 2022
calendar year. A small number of broker-dealers did not identify any
customer or PAB reserve computation frequency (for example, for
broker-dealers reporting positive credits in customer accounts, one
failed to report reporting frequency in their FOCUS Report).
Therefore, the total number of carrying broker-dealers exceeds the
sum of the number of broker-dealers who identified a daily, weekly,
or monthly computation frequency. Of the carrying broker-dealers
that reported a filing frequency in 2022 calendar year, the reported
frequency (daily, weekly, or monthly) remained the same in each
reported month.

                                                  Table 3--Reserve Formula Computation Frequency, 2022
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                     Customer reserve formula                           PAB reserve formula
            Average total credits               Number   -----------------------------------------------------------------------------------------------
                                                            Number       Daily      Weekly      Monthy      Number       Daily      Weekly      Monthly
--------------------------------------------------------------------------------------------------------------------------------------------------------
>$0-100MM...................................          81          81           1          67          12          18           0          17           1
$100-250MM..................................          18          18           0          18           0          12           0          12           0
$250-500MM..................................           8           8           0           8           0           3           0           3           0
$500MM-1B...................................           9           9           0           9           0           7           0           7           0
$1-5B.......................................          18          18           1          17           0          16           1          15           0
$5-10B......................................           7           7           0           7           0           7           0           7           0
>=10B.......................................          21          21          10          11           0          19           9          10           0
                                             -----------------------------------------------------------------------------------------------------------
    Total...................................         162         162          12         137          12          82          10          71           1
--------------------------------------------------------------------------------------------------------------------------------------------------------

    As shown in Table 4, out of 162 broker-dealers that reported the
frequency of their customer reserve formula computations, there were 12
carrying broker-dealers that performed the customer reserve computation
daily, among which 10 also performed the PAB reserve computation daily
and two which do not report carrying PAB accounts. Among carrying
broker-dealers performing the customer reserve computation daily, 11
had total credits above the proposed $250 Million Threshold. These 11
carrying broker-dealers accounted for 64 percent of the total amount of
average total credits among all carrying-broker dealers with positive
customer or PAB credits reported in 2022.\132\ All the carrying broker-
dealers performing the PAB reserve computation daily had total credits
above the proposed $250 Million Threshold.\133\
---------------------------------------------------------------------------

    \132\ Calculated from monthly FOCUS Reports for 2022.
    \133\ The broker-dealers identified as filing daily in the
January 2022 to December 2022 sample were the same broker-dealers
identified in the April 2022 to May 2023 sample (for both customer
and PAB accounts).
---------------------------------------------------------------------------

    Based on the January 2022 to December 2022 period, there were 52
carrying broker-dealers with average total credits equal to $250
million or above performing the customer reserve computation weekly and
there were no carrying broker-dealers with average total credits equal
to $250 million or above performing the customer reserve computation
monthly. Among the 52 carrying broker-dealers performing weekly
customer reserve computation, there were 42 carrying broker-dealers
that performed the PAB reserve computation weekly and there were no
carrying broker-dealers with average total credits equal to $250
million or above that performed the PAB reserve computation monthly.
Based on the data for 2022, the Commission estimates that 52 carrying
broker-dealers would be affected by the proposal.
    Table 5 below shows the distribution of deposits required to be put
into the customer and PAB reserve bank accounts or permitted
withdrawals after the reserve computation performed at the end of the
reporting period relative to the initial reserve bank account
balance.\134\ These metrics provide a picture of the ``mismatch'' that
occurs with respect to customer and PAB accounts. The column ``Average
Mismatch'' is calculated as the average of deposits (averaged over
2022) for each broker-dealer relative to the average balance in the
reserve account (customer or PAB account).
---------------------------------------------------------------------------

    \134\ Calculated from monthly FOCUS Reports for 2022. The
Commission isolated deposits (equal to or greater than zero) from
any month (Line 4520), relative to the reserve account balance,
(Line 4530). For PAB reserve bank accounts, deposits and amount in
reserve account are FOCUS Lines 2290 and 2300, respectively. Note,
the Commission also recalculated by defining the deposit category as
only values greater than zero, but the average mismatch did not
change very much for each category, nor did the pattern seen in the
table.
---------------------------------------------------------------------------

    With respect to customer reserve accounts, shown in Panel A, the
largest average mismatches occurred for broker-dealers over the $250
Million Threshold, with the largest occurring for carrying broker-
dealers within the $5 to $10 billion range. For the case of the maximum
mismatch during the year, there appears to be less of a correlation
with carrying broker-dealer size.\135\ For PAB reserve accounts, shown
in Panel B, the largest average mismatch and the maximum mismatch
occurred for the groups of carrying broker-dealers over $250 million in
average total credits (it is also the case that the total amount of PAB
accounts are concentrated among those carrying broker-dealers).
---------------------------------------------------------------------------

    \135\ For the maximum mismatch, the Commission isolated the
largest monthly deposit amount in 2022 (Line 4520), relative to the
reserve account balance for that month (Line 4530). The same was
done for PAB reserve accounts (FOCUS Lines 2290 and 2300,
respectively).
---------------------------------------------------------------------------

    Panel C and D of Table 5 display the average mismatch and maximum
mismatch metrics comparing the large carrying broker-dealers (over $1
billion in average total credits) that currently compute their reserve
accounts daily versus those that do so weekly.\136\ With respect to
customer reserve accounts (Panel C), carrying broker-dealers that
compute daily have larger average reserve balances and deposits, and
lower average and maximum mismatches than those that compute
weekly.\137\
---------------------------------------------------------------------------

    \136\ As noted above, the number and identity of the daily
filers are consistent from December 2022 through May 2023. See supra
note 133.
    \137\ Panel C omits the one carrying broker-dealer below the
$250 Million Threshold that computed their customer reserve account
daily in 2022.
---------------------------------------------------------------------------

    For PAB reserve accounts (Panel D), the average or maximum mismatch
do not appear as correlated with daily versus weekly filing.\138\
---------------------------------------------------------------------------

    \138\ The patterns and inference drawn from Table 5 are similar
if constructed with the rolling sample period from June 2022 to May
2023. For example, for the daily filers shown in Panel C, the
average mismatch is 4.9 percent, while for weekly filers, the
average mismatch is 14.6 percent.

                               Table 4--Broker-Dealer Deposits and Withdrawals as a Share of Reserve Account Balance, 2022
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                            Average
                  Broker-dealer group                       Number          reserve         Average          Average          Average         Maximum
                                                                          balance MM      deposit MM      withdrawal MM     mismatch %      mismatch %
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                           Panel A: Customer Reserve Accounts
--------------------------------------------------------------------------------------------------------------------------------------------------------
>$0-100MM.............................................              81            $9.5            $0.7             -$4.1             6.1            25.2
$100-250MM............................................              18            52.7             1.9             -16.2             5.7            27.1
$250-500MM............................................               8           180.8             9.9             -16.0             6.1            20.9
$500MM-1B.............................................               9           124.2             7.7             -32.2            18.2            35.9
$1-5B.................................................              18             732            35.8             -61.4             5.4            22.5
$5-10B................................................               7         1,147.2             234            -122.4            31.9            57.4
[gteqt]10B............................................              21        14,150.6           542.3            -841.6             7.9            25.3
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                              Panel B: PAB Reserve Accounts
--------------------------------------------------------------------------------------------------------------------------------------------------------
>$0-100 MM............................................              18             1.2            0.03              -0.3             2.9            18.7
$100-250 MM...........................................              12             5.3             0.3              -2.9             2.3            10.4
$250-500 MM...........................................               3            19.9             1.3              -5.3             5.2            24.7
$500MM-1 B............................................               7           106.5             4.5             -27.3            11.4            41.1
$1-5 B................................................              16            27.9             5.5             -20.4             7.7              44
$5-10 B...............................................               7           184.5            56.2            -108.6            10.4              39
[gteqt]10 B...........................................              19           749.1           127.4            -279.9             7.6            29.4
--------------------------------------------------------------------------------------------------------------------------------------------------------

                                                           Panel C: Customer Reserve Accounts
--------------------------------------------------------------------------------------------------------------------------------------------------------
All (weekly and daily):
    >=1B..............................................              46         6,921.1           297.2            -441.1            10.7            29.2
Daily:
    >=1B..............................................              11        13,324.2           482.3          -1,227.8             5.2            22.1
Weekly:
    >=1B..............................................              35         4,908.7             239            -178.9            12.4            31.5
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                              Panel D: PAB Reserve Accounts
--------------------------------------------------------------------------------------------------------------------------------------------------------
All (weekly and daily):
    >=1B..............................................              42           380.3            69.1            -159.1             8.1            36.6
Daily:
    >=1B..............................................              10         1,153.7           216.8            -356.5             8.9            33.4
Weekly:
    >=1B..............................................              32           138.5            22.9             -74.5             7.9            37.4
--------------------------------------------------------------------------------------------------------------------------------------------------------

C. Benefits and Costs of the Proposed Amendments

    Customers and PAB account holders of the affected carrying broker-
dealers are expected to benefit from the proposed daily customer and
PAB reserve computations. As reflected in the discussion in section I.C
of this release noting the large amounts of deposits carrying broker-
dealers may receive, and as evidenced from the information in Table 5,
a weekly customer and PAB reserve computation can result in a carrying
broker-dealer owing a net amount of cash to customers or PAB account
holders for a number of days that is greater than the current amounts
deposited into the customer and PAB reserve bank accounts. Hence, if a
carrying broker-dealer fails before the next reserve account
computation and the reserve bank account balances do not represent the
actual net amount of cash owed to customers or PAB account holders,
these customers and PAB account holders may be at risk of not
recovering their funds from the carrying broker-dealer or having it
tied up in a liquidation proceeding. Performing daily customer and PAB
reserve computations would likely decrease this risk.
    Under the scenario where a carrying broker-dealer does not have
sufficient funds to repay what it owes to customers or PAB account
holders, SIPC likely would need to initiate a liquidation of the
carrying broker-dealer under SIPA.\139\ Although the SIPC Fund can be
used to advance funds to customers that are owed money, PAB account
holders are not entitled to such advances; therefore, they may not
receive the funds owed to them by a failed carrying broker-dealer as
promptly as customers of such broker-dealer may. In addition, there is
a limit on advances to customers in the amount of $500,000 per customer
(of which $250,000 can be used to cover cash claims). If some customers
are owed more than such limit, these customers would have to wait along
with PAB account holders until a trustee is appointed who would
consequently attempt to recover assets of the failed carrying broker-
dealer via asset sales or other recovery methods. This recovery process
may, in some cases, be lengthy.\140\ In an extreme case, the recovery
amounts the trustee is able to receive may still be insufficient to
make all customers and PAB account holders whole, which means that
these customers and PAB account holders have to absorb the loss.
---------------------------------------------------------------------------

    \139\ See section I.B.3 of this release (discussing broker-
dealer liquidations and SIPA).
    \140\ For example, it has been the case that customers of a
liquidated carrying broker-dealer have had to wait up to six months
or more to access their assets during the liquidation period. See
Michael P. Jamroz, The Customer Protection Rule, 57 Bus. Law. 1069
(May 2002), available at https://www.jstor.org/stable/40688076.
---------------------------------------------------------------------------

    Based on these various circumstances surrounding a failure of a
carrying broker-dealer, from the customer's or PAB account holder's
perspective, there are varying degrees of risk related to a potential
failure of a carrying broker-dealer, depending on whether it has enough
funds to make all customer and PAB account holders whole at the time of
its failure. Therefore, maintaining levels of customer and PAB reserve
bank account balances that more closely represent the actual amounts of
net cash owed to customers and PAB account holders would benefit these
customers and PAB account holders by decreasing the risk of not
completely recovering their funds from the carrying broker-dealer or
having these funds tied up in a liquidation proceeding.\141\
---------------------------------------------------------------------------

    \141\ The Commission notes that, with daily computing, there
will still be a mismatch between the actual net cash owed to
customers and the reserve account balance because of the deposit
timing delay, which is the morning of the second business day after
the day of calculation. Should a carrying broker-dealer computing
daily fail, and the amount of the mismatch is lower than in the case
of a weekly computation, the customer may receive their funds more
promptly from the carrying broker-dealers' available assets than in
the case where mismatches are larger (which may imply a longer
liquidation process), underscoring the potential benefit from daily
computing. It is also a possibility, however, that daily computing
may lead to a situation with large mismatches. If a carrying broker-
dealer receives large customer deposits on consecutive days, given
the two-day settlement period, any mismatch may persist over that
period, and should the carrying broker-dealer fail, the benefits to
customers of daily computation may be reduced.
---------------------------------------------------------------------------

    In addition, performing daily customer and PAB reserve computations
would benefit customers and PAB account holders of the affected
carrying broker-dealers by acting as a prophylactic that reduces the
risk of broker-dealers using customers' or PAB account holders' funds
for other purposes that are not permissible under Rule 15c3-3, if the
part of the net cash owed to customers or PAB account holders is
comingled with other funds in a broker-dealer's operating account.\142\
When a carrying broker-

dealer experiences a large inflow of customer cash, reducing the time
between that inflow and when the carrying broker-dealer performs its
next customer and PAB reserve computations and funds its reserve
accounts could reduce the risk that those funds may be inadvertently
used for other purposes that may carry a risk to the customers and PAB
account holders. Under the proposal, the affected carrying broker-
dealers would not be able to do this, which would reduce the risk of
reserve fund mismatches.
---------------------------------------------------------------------------

    \142\ The Commission notes that, with respect to each customer
reserve computation required pursuant to Rule 15c3-3, a broker-
dealer must not accept or use any of the amounts under items
comprising total credits under the customer reserve formula except
for the specified purposes indicated under items comprising total
debits under the formula. See paragraph (e)(2) of Rule 15c3-3. 17
CFR 240.15c3-3(e)(2).
---------------------------------------------------------------------------

    Other broker-dealers that are SIPC members may also benefit from
the proposed daily computation of the customer and PAB reserve
formulas. Specifically, if a failing carrying broker-dealer with a
mismatch between the reserve bank account balances and actual cash owed
to customers and PAB account holders is put into SIPC liquidation, SIPC
may be required to use the SIPC Fund to advance money to customers from
the SIPC Fund, reducing its balance and potentially depleting the SIPC
Fund.\143\ Consequently, a reduction in the SIPC Fund balance and/or
SIPC's unrestricted net assets may trigger increased contributions from
member broker-dealers, as displayed in Table 1 in section I.B.3. of
this release, with more substantive balance reductions requiring larger
increases in assessments of member broker-dealers, which may be passed
onto investors. Therefore, the proposed daily computation would benefit
SIPC member broker-dealers by reducing the risk of SIPC Fund depletion
and a consequent increase in SIPC assessments.
---------------------------------------------------------------------------

    \143\ The Commission notes that, while broker-dealers (which
includes PAB account holders) are customers for the purposes of
SIPA, they are not entitled to the advances from the SIPC Fund of up
to $500,000 (limited to $250,000 for cash claims) allowed under SIPA
to make up for potential shortfalls after the pro rata distribution
of customer property. See 15 U.S.C. 78fff-3(a).
---------------------------------------------------------------------------

    The proposed daily computation would apply only to carrying broker-
dealers whose average total credits exceed the $250 Million Threshold.
Given the information from the 12-month average based on the 2022
monthly FOCUS Reports as an example, the Commission estimates that 52
broker-dealers would be required to switch to a daily computation of
the customer reserve formula and 42 broker-dealers would be required to
switch to a daily computation of the PAB reserve formula.\144\ As shown
in Table 5, carrying broker-dealers with average total credits above
the proposed $250 Million Threshold are more likely to experience
larger mismatches and the dollar amounts underlying those mismatches
are significantly larger.\145\ And as shown in Panel C of Table 5,
those carrying broker-dealers that compute daily tend to have smaller
mismatches than those that compute weekly. Hence, the proposal may
reduce the likelihood of mismatches, benefitting customers and PAB
account holders of the affected carrying broker-dealers.
---------------------------------------------------------------------------

    \144\ See Table 3.
    \145\ See discussion in section IV.B.2. of this release for more
details on Table 5.
---------------------------------------------------------------------------

    Further, in cases where carrying broker-dealers with greater
amounts of total credits are more interdependent with other carrying
broker-dealers than carrying broker-dealers with smaller amounts of
total credits, having more large broker-dealers computing daily may
benefit financial markets overall without imposing the costs of daily
computation onto carrying broker-dealers that do not have significant
amounts of total credits. To the extent that carrying broker-dealers
above the threshold are more likely to have more PAB account holders
(which include other broker-dealers) or PAB account holders with
greater amounts of cash in their PAB accounts, the broker-dealers above
the threshold may pose greater risk to other broker-dealers. As shown
in Table 3, among the 63 carrying broker-dealers above the proposed
$250 Million Threshold, based on data for January 2022 through December
2022, approximately 82.5 percent carry PAB accounts while only
approximately 26.6 percent of the unaffected broker-dealers carry PAB
accounts.
    That is, should a carrying broker-dealer fail and not have
sufficient funds in its PAB reserve bank account to make whole its PAB
account holders, a broker-dealer that is a PAB account holder of the
failed carrying broker-dealer may consequently be exposed to financial
stress, which could further propagate to its PAB account holders, and
so on. This risk is exacerbated for PAB account holders because they
are not entitled to advances from the SIPC Fund. In that way, a failure
of one large carrying broker-dealer with a mismatched PAB reserve bank
account may result in other carrying broker-dealers experiencing
financial stress and increased risk of liquidation. In so far as a
daily computation for carrying broker-dealers with total credits above
the $250 Million Threshold reduces the chance that a large carrying
broker-dealer has mismatched funds in its PAB reserve bank account, the
potential for stress propagation associated with a failure of a
carrying broker-dealer could be reduced.
    Affected broker-dealers may experience an increase in costs as a
result of the proposed daily computation. The Commission expect these
costs to be primarily related to the operational changes, staff
increases, and upgrades required for daily computing and the costs
related to the recordkeeping requirements. The Commission estimates
that it takes a carrying broker-dealer between one to five hours per
computation to prepare the records of the computations, or an average
of 2.5 hours.\146\ Given the 52 carrying broker-dealers that would be
required to switch to a daily computation of the reserve formulas under
the proposal, that implies an increase in the aggregate annual
recordkeeping burden of approximately $13 million.\147\ To the extent
that carrying broker-dealers with total credits above the $250 Million
Threshold may experience economies of scale and may have more
sophisticated operational systems, with experienced and well-trained
staff,\148\ the increase in compliance costs may not be substantial. In
addition, the 11 carrying broker-dealers that already perform such
computations daily (as shown in Table 4, based on data for the period
for January 2022 through December 2022) may not experience an increase
in compliance costs.
---------------------------------------------------------------------------

    \146\ See infra section V. of this release (discussing PRA).
    \147\ Id. The Commission assumed an hourly rate of $295 per hour
for a ``financial reporting manager.'' That computes to a potential
added cost of $13,726,350 ($295 x 46,530 hours) to the affected
carrying broker-dealers.
    \148\ See related discussion in Stavros Gadinis, The SEC and the
Financial Industry: Evidence from Enforcement Against Broker-
Dealers, 67 Bus. Law. 679 (May 2012), available at https://www.jstor.org/stable/2324001.
---------------------------------------------------------------------------

    However, to the extent that the affected carrying broker-dealers
that are just above the threshold do not experience the same economies
of scale as carrying broker-dealers that are well above the threshold,
they may be disproportionately affected by the proposed requirement and
the related costs. If these costs are significant, some carrying
broker-dealers may decide to alter their business to fall below the
threshold and avoid the costs related to performing the customer and
PAB reserve computations daily. If so, the potential benefits of the
proposal may be mitigated.

    Carrying broker-dealers just below or above the threshold may also
experience uncertainty related to being scoped into compliance with the
daily computation requirement and may experience costs related to this
uncertainty. As displayed in Figure 1, some carrying broker-dealers are
likely to drop below the $250 Million Threshold, and then once again
exceed the threshold in later months. The costs related to these
fluctuations are uncertain, but are likely to add, for such carrying
broker-dealers, to the cost estimates cited above (for example, if
additional staff is needed by these carrying broker-dealers to monitor
their customer reserve accounts more closely than firms well above the
$250 Million Threshold).
    Finally, while switching back and forth between daily and weekly
computations may tailor the compliance costs to the size of customer
activity, these fluctuations may also be confusing for customers and
PAB account holders of carrying broker-dealers who decide to switch.
However, this potential cost or concern may be trivial as many
customers may be unaware of, or unconcerned by, the switch.

D. Effects on Efficiency, Competition, and Capital Formation

    The proposed amendments may affect competition among carrying
broker-dealers. First, to the extent that compliance costs would be
passed onto customers and PAB account holders, affected carrying
broker-dealers that experience greater economies of scale may become
more competitive than other affected carrying broker-dealers. Second,
to the extent that customers of carrying broker-dealers value daily
reserve computations more than the weekly computations, the affected
carrying broker-dealers may become more competitive relative to the
unaffected carrying broker-dealers. However, the Commission does not
anticipate such an effect to be large. Given the fact eleven carrying
broker-dealers already compute daily, if such a competitive advantage
existed, and carrying broker-dealers performing weekly computations
were losing customers, then more carrying broker-dealers would have
likely already converted to daily computing.
    The proposed amendments may increase liquidity in the securities
markets, as they would promote confidence in the broker-dealer industry
and result in an increase of customer and PAB account activities. As a
consequence, market efficiency and capital formation in the underlying
markets may increase. Under the baseline there is a greater chance of a
larger mismatch with weekly reserve computations than with daily
reserve computations, suggesting a greater risk in doing business with
a carrying broker-dealer that performs its customer and PAB reserve
computations weekly. Also, to the extent that the mismatch reflects an
overfunding, there may also be a greater cost to the carrying broker-
dealer (and by extension its customers), since it ties up capital that
the broker-dealer could have put to more productive use.
    Therefore, should customers and PAB account holders have a concern
over mismatch in reserve bank accounts and potential failures affect
market participants' willingness to expose themselves to broker-
dealers, there may be less capital committed to this market as
otherwise. However, similar to the point above, if customers of
carrying broker-dealers were aware and concerned of mismatches, the
Commission might have already observed more carrying broker-dealers
computing daily, in order to retain customers, than is currently the
case under the baseline. Therefore, the Commission does not anticipate
any effect on capital formation in this market to be significant.
    In addition, in so far as capital loss could arise in times of
market stress due to an increased likelihood of carrying broker-dealer
failures, market participants may become concerned with the possibility
of not getting their cash promptly or not getting paid in full, in an
event of a carrying broker-dealer failure and reduce their exposure to
broker-dealers. To the extent that the proposed daily computation
requirement alleviates this concern, the risk of flight of capital from
securities markets may decrease during stressed market conditions and
capital inflow during normal market conditions may increase.
    Finally, the proposed daily computation may benefit the affected
carrying broker-dealers by increasing their operational efficiency. For
example, in a scenario where customer reserve or PAB reserve accounts
are over-funded, a carrying broker-dealer that performs a weekly
computation cannot withdraw excess cash from the customer reserve bank
account until the following reserve computation date, even if the value
of the account exceeds the actual net cash owed to customers, exposing
this carrying broker-dealer to operational inefficiency. A daily
computation would permit the affected carrying broker-dealers to
withdraw these excess funds in a timely manner and would allow them to
manage their funds and operations more effectively. In this context,
daily computation implies that a carrying broker-dealer's capital
commitments are more efficiently employed.
    Since the proposed requirements do not impact the scope of
information available to investors, the Commission does not anticipate
effects on informational efficiency to be significant.

E. Reasonable Alternatives

1. Over-Funding of the Customer and PAB Reserve Bank Accounts
    As an alternative to daily computation requirements, the Commission
could require an over-funding approach which would apply to the
customer and PAB reserve bank accounts. For example, carrying broker-
dealers would perform the required reserve computations and deposits
weekly and deposit a multiple of this amount (e.g., 105% or 110%) into
the customer or PAB reserve bank account. Under this alternative
approach, carrying broker-dealers would avoid an increase in compliance
costs associated with a daily computation requirement (hence, this
alternative would apply to carrying broker-dealers choosing weekly
funding). Insofar as the compliance costs associated with the proposed
daily computation would be passed onto customers and PAB account
holders of the affected carrying broker-dealers, this alternative
approach may be more beneficial for these customers and PAB account
holders because it would not imply an operational change and compliance
costs related to the customer and PAB reserve computation while
offering extra protection for customers and PAB account holders.
    However, under this alternative the carrying broker-dealer would
need to fund the excess with its own cash, which could result in
funding costs, decreased liquidity, and opportunity costs from not
being able to deploy this cash in the firm's business. As a result,
requiring carrying broker-dealers to place extra cash in a customer or
PAB reserve bank account may result in an operational efficiency
decrease and potential reduction of carrying broker-dealers' profits,
which may be passed onto customers, PAB account holders, and other
stakeholders. In addition, this approach may not account for the actual
net cash owed to customers and PAB account holders, if reserve bank
account mismatches exceed the buffer that this alternative would
require.
2. A Threshold Based on a Different Metric
    As an alternative, the Commission could set a threshold for
compliance

with a daily computation requirement based on a different metric. For
example, the Commission could set a threshold based on total assets of
$1 billion or net capital of $50 million. A threshold based on such
metrics may be more representative of the economies of scale that
carrying broker-dealers experience and may better indicate a carrying
broker-dealer's ability to comply with enhanced requirements without
substantial increases in compliance costs that could ultimately be
passed onto their customers.
    Based on the monthly 2022 FOCUS Reports, the Commission estimates
that under the alternative threshold of $1 billion in total assets 80
broker-dealers would be required to perform the customer and PAB
reserve computations daily. Of the 63 carrying broker-dealers that are
at or above the $250 Million Threshold for average total credits, three
have total assets below $1 billion, while 20 broker-dealers below the
$250 Million Threshold have total assets over $1 billion.
    With respect to a $50 million net capital threshold, 104 broker-
dealers would be required to perform the customer and PAB reserve
computations daily. Of broker-dealers that are below $250 Million
Threshold for average total credits, 24 have net capital exceeding $50
million, while of the group above $250 Million Threshold for average
total credits, three have net capital below $50 million.
    If the alternative states that the broker-dealer has over $1
billion in total assets, or has over $50 million net capital threshold,
105 broker-dealers would be required to perform the customer and PAB
reserve computations daily.
    A drawback to this alternative is that some large broker-dealers
with minimal amounts of carrying activity would bear the added cost of
switching to a daily computation. For example, the group of 20 carrying
broker-dealers below the $250 Million Threshold with $1 billion in
assets or more, had a combined total of average total credits of
approximately $1.5 billion as of the end of 2022. That amounted to only
about 0.11 percent of average total credits for all broker-dealers for
that year.\149\
---------------------------------------------------------------------------

    \149\ The numbers for this alternative do not change much if the
rolling average is computed using the June 2022 to May 2023 period.
See Table 7 below in section IV.E.6 of this release for those
numbers.
---------------------------------------------------------------------------

3. Daily Computation Requirement for All Carrying Broker-Dealers
    As an alternative, the Commission could require the daily
computation requirement to apply to all carrying broker-dealers (a
``zero'' threshold). Under this alternative, a greater number of
carrying broker-dealers would perform their customer and PAB reserve
computations daily, which would benefit more customers and PAB account
holders compared to the proposal. Specifically, under the zero
threshold, 99 more carrying broker-dealers would experience the
benefits and costs discussed in section IV.C. of this release (compared
to the 63 affected based on the January 2022 to December 2022 period).
    Further, to the degree that carrying broker-dealers with smaller
amounts of total credits are interdependent with other broker-dealer to
the same degree as carrying broker-dealers with larger amounts of total
credits, the zero-threshold approach may benefit all PAB account
holders equally and potentially reducing the systemic risk to a greater
degree relative to the proposal. The amount of credits held in the PAB
reserve bank accounts of the 52 broker-dealers (with PAB accounts)
above the $250 Million Threshold makes up approximately 99 percent of
the total amount held in PAB reserve bank accounts (of the 82 broker-
dealers that reported carrying PAB accounts in 2022).\150\
---------------------------------------------------------------------------

    \150\ See Table 7 below in section IV.E.6 of this release for
numbers based on the June 2022 to May 2023 period.
---------------------------------------------------------------------------

    In particular, in so far as a daily computation for all carrying
broker-dealers reduces the chance that any carrying broker-dealer has
funds in its PAB reserve bank account that are less than the net amount
of cash owed to PAB account holders, the potential for stress
propagation associated with a failure of a carrying broker-dealer could
be reduced.
    However, this alternative would impose compliance costs on a
greater number of carrying broker-dealers, which could be passed onto
customers and PAB account holders. In addition, customer protection
benefits may be outweighed by the reduction in operational efficiency
of carrying broker-dealers with little customer and PAB account
activity that may arise from disproportional dedication of resources
towards a de minimus business activity. Relatedly, this alternative may
also impose significant economic impact on small businesses.\151\
---------------------------------------------------------------------------

    \151\ See 5 U.S.C. 601 through 612.
---------------------------------------------------------------------------

4. A Higher or Lower Threshold for Daily Computation
    As an alternative, the Commission could have proposed a threshold
higher or lower than $250 million in average total credits. Under these
alternatives, fewer or more carrying broker-dealers would be required
to perform their customer and PAB reserve computations daily. For
example, if the threshold was set at $100 million, a total of 81
broker-dealers would be scoped into the new requirements compared to
the 63 under the proposal. Similarly, if the threshold was set at $1
billion, only 46 broker-dealers would be scoped into the new
requirements.\152\
---------------------------------------------------------------------------

    \152\ See Table 7 below in section IV.E.6 of this release for
numbers based on the June 2022 to May 2023 period.
---------------------------------------------------------------------------

    For the case of the $100 million threshold, with more carrying
broker-dealers computing daily, there would possibly be fewer broker-
dealers having a mismatch between the net cash owed to the carrying
broker-dealer's customers and the amounts deposited in their customer
or PAB reserve bank accounts. The potential cost of this alternative
implies that more broker-dealers would incur the burden of performing
their customer and PAB reserve computations daily. If the threshold
were set at $1 billion, fewer carrying broker-dealers would face the
costs of a daily computation than under the proposal. However, there
would be fewer carrying broker-dealers computing daily, suggesting the
potential for more carrying broker-dealers having a mismatch than under
the proposal.
5. Calculation Based on the Maximum Value Over the Past Year
    The proposed $250 Million Threshold would be the arithmetic mean of
the total credits in the customer and PAB reserve computations reported
on the twelve most recently filed month-end FOCUS Reports.\153\ As an
alternative, the Commission could have proposed a threshold based on
the maximum value for total credits during the most recently ended
calendar year. This alternative may more appropriately account for the
implied capacity of the carrying broker-dealer's reserve bank accounts.
For example, if total credits related to customers or PAB account
holders' activity fluctuate throughout a year or based on economic
cycles and such fluctuations are predictable, the maximum value of
total credits may be more representative of the customer transactions'
volume. As another example, if a carrying broker-dealer experiences
trending growth of its

customer base, the maximum value of total credits would also be more
representative of the current size of the customer base.
---------------------------------------------------------------------------

    \153\ This would mean, for example, if a carrying broker-dealer
was required to file 12 FOCUS Reports for a calendar year, the
carrying broker-dealer would add up the Total Credits reported in
both the customer and PAB reserve formulas in each of the 12 FOCUS
Reports filed, and divide the total by 12 to compute the arithmetic
mean.
---------------------------------------------------------------------------

    Table 6 below regroups carrying broker-dealers based on the maximum
number reported for total credits within a given year. Under this
alternative, 74 carrying broker-dealers would be scoped into the
compliance with performing the customer and PAB reserve computations
daily, compared to the 63 that would be so under the proposal.

                                              Table 5--Threshold Based on Maximum Total Credits During 2022
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                         Total      Total customer credits, $MM         Total PAB credits, $MM       Total credits, $MM
                                              Number     assets  ---------------------------------------------------------------------------------------
                                                          ($B)      Number      Mean      Median     Number      Mean      Median      Mean      Median
--------------------------------------------------------------------------------------------------------------------------------------------------------
>$0-100MM.................................         70       78.1         70       15.5        3.4         16        1.2  .........       16.6          4
$100-250MM................................         18       42.8         18      161.0      165.9         10       12.3  .........      166.6      165.9
$250-500MM................................         13        142         13      354.5      371.6          4        1.9  .........      354.9      373.3
$500MM-1B.................................          8       87.6          8      705.7      736.8          5       35.2        6.7      723.6      765.2
$1-5B.....................................         25      584.8         25    2,338.1    2,057.1         21      212.5        6.9    2,513.7    2,058.2
$5-10B....................................          6      149.8          6    7,070.8    6,367.5          6      898.8       57.3    7,955.5    7,736.7
>=10B.....................................         22      3,402         22   55,584.5   26,096.5         20    8,197.1      696.4   62,990.5     32,340
                                           -------------------------------------------------------------------------------------------------------------
    Total \a\.............................        162    4,487.1        162    8,295.1        171         82      1,183          0    9,326.7        180
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ Table excludes carrying broker-dealers with zero reported credits in 2022.

    A benefit of this alternative is those carrying broker-dealers with
the largest amounts of total credits would be scoped into daily
computing, where the largest credits reported (as opposed to the
average) could be more indicative of a potential mismatch between the
net cash owed to customers and the reserve account balances. However,
this alternative may also create uncertainty if any cyclical behavior
of total credits that has occurred over some historical period, changes
unexpectedly, leading to potential for a carrying broker-dealer
oscillating between weekly and daily computations and deposits from
year to year.
    Table 7 summarizes the number of affected broker-dealers under the
alternatives proposed thus far versus the proposal, both for the
rolling sample period defined from January 2022 to December 2022 and
for the period defined from June 2022 to May 2023.

    Table 7--Summary of Affected Broker-Dealers Under Proposal Versus
                              Alternatives
------------------------------------------------------------------------
                                        Number of
                                     affected broker-      Number of
                                    dealers (based on   affected broker-
     Alternatives vs. proposal        period January   dealers (based on
                                     2022 to December   period June 2022
                                          2022)           to May 2023)
------------------------------------------------------------------------
Proposal..........................                 63                 61
Alternatives:
    Alt 1 Over-Funding............                162                162
    Alt 2 $1B in Total Assets.....                 80                 79
    Alt 2 $50MM in Net Capital....                104                103
    Alt 3 Daily for all...........                162                162
    Alt 4 Average T.C. >$1B.......                 46                 44
    Alt 4 Average T.C. >$100MM....                 81                 76
    Alt 5 Maximum Total Credits...                 74                 69
------------------------------------------------------------------------

6. Daily Computation if an Average Required Deposit Exceeds a Threshold
    As an alternative to performing the customer and PAB reserve
computations daily for carrying broker-dealers over a threshold
(defined by average total credits), the Commission could have proposed
an approach that would require a daily computation in the case where
the required reserve bank account deposit as a share of the reserve
bank account balance prior to such deposit exceeds a certain percentage
threshold (e.g., 5% or 10%).\154\
---------------------------------------------------------------------------

    \154\ See discussion related to Table 5 in section IV.B.2. of
this release.
---------------------------------------------------------------------------

    This alternative approach would account for broker-dealer-specific
trends related to customer transactions. If the customer base differs
substantially between carrying broker-dealers, with customers of some
broker-dealers trading more often or doing account activities that
increase the carrying broker-dealer's total credits by more compared to
the customer base of other broker-dealers, this alternative approach
would focus only on those carrying broker-dealers that typically
experience larger reserve mismatches. However, given the information
displayed in Table 5, there does not appear to be a perfect correlation
with broker-dealer size (measured by average total credits), and the
deposit ``mismatch.'' \155\ Smaller-broker dealers have an average
mismatch more than 5 percent (based on the January 2022 to December
2022 period), implying the possibility of an undue burden with respect
to compliance costs. That latter could ultimately be passed onto the
carrying broker-dealers' customers and PAB account holders.
---------------------------------------------------------------------------

    \155\ Computed by dividing the numbers in column four by the
numbers in column three of panel A of Table 5.

---------------------------------------------------------------------------

7. Daily Computation Requirement Based on Average Total Credits per
Number of Customer and PAB Accounts
    As an alternative to performing the customer and PAB reserve
computations daily for carrying broker-dealers over a threshold
(defined by average total credits), the Commission could require daily
computations based on average total credits per number of customer
accounts. While a failure of carrying broker-dealers with smaller
amounts of total credits may not pose a significant risk of depletion
to the SIPC Fund, a threshold based on the average total credits may
have limitations from an individual customer or PAB account holder
prospective. This is because such a threshold does not account for the
number of customers and PAB account holders a carrying broker-dealer
might have and is disconnected from the per-customer protection
approach that is used by SIPC.\156\
---------------------------------------------------------------------------

    \156\ Per 15 U.S.C. 78fff-2(c), customers of a failed broker-
dealer have the right to share pro rata with other SIPA customers in
the customer property held by that broker-dealer. See section I.B.3.
of this release for more details.
---------------------------------------------------------------------------

    For example, consider two broker-dealers, both with $150 million in
total credits which is below the $250 million. The first broker-dealer
has three customers, each contributing $50 million in credits towards
the broker-dealer's aggregate value of total credits, and the second
broker-dealer has 100 customers each contributing $1.5 million in
credits towards the broker-dealer's aggregate value of total credits.
Recall that the maximum advance from the SIPC Fund is $500,000 per
customer. Consider a situation where both broker-dealers fail and their
reserve bank accounts are underfunded by more than one percent of what
is owed to customers (i.e., the shortage is above $1.5 million). In
this situation, the customers of the second broker-dealer would be made
whole promptly with an advance from the SIPC Fund, but the customers of
the first broker-dealer would not be made whole (because the per-
customer loss is above maximum per-customer SIPC advance of $500,000)
until SIPC recovers funds from the broker-dealer, which may take some
time.
    The above example notwithstanding, data from the FOCUS Reports for
2022 suggests the potential for this concern is likely negligible.
Table 8 displays the amounts of average total credits per total
accounts for each size grouping of broker-dealers. For the 162 firms
that reported positive total credits in December 2022, the average
amount of average total credits per account (with the number of
customer accounts and PAB accounts combined) was notably larger for the
firms above the $250 Million Threshold than for broker-dealers below
the threshold. Firms above the $250 Million Threshold had about $19
million per customer account, while firms below the $250 Million
Threshold had about $1 million on average per customer account.\157\
---------------------------------------------------------------------------

    \157\ Calculated from monthly FOCUS Reports for 2022. The
Commission divided average total credits in 2022 for each broker-
dealer by the number of total customer and PAB accounts for each
broker-dealer (Lines 8080 and 8081, respectively), then computed the
average of the per customer amount for each size category, and above
and below the $250 Million Threshold. Lines 8080 and 8081 are
reported in the December FOCUS Report each year, hence those numbers
are not yet available for the rolling averages beyond 2022.

                   Table 8--Threshold Based on Average Total Credits per Accounts During 2022
----------------------------------------------------------------------------------------------------------------
                                                                     Number of     Total credits   Total credits
                                                                  accounts (Cust        $MM         per account
                                                      Number          + PAB)     ----------------       $MM
                                                                 ----------------                ---------------
                                                                       Mean            Mean            Mean
----------------------------------------------------------------------------------------------------------------
>$0-100MM.......................................              81         204,081            15.3             0.7
$100-250MM......................................              18         311,261           137.6             1.9
$250-500MM......................................               8         122,261           383.3             0.1
$500MM-1B.......................................               9         114,678           691.8            60.3
$1-5B...........................................              18       1,542,836         2,184.2            34.3
$5-10B..........................................               7       6,226,305         6,599.6             1.9
>=10B...........................................              21       7,700,435        58,619.8             3.0
                                                 ---------------------------------------------------------------
    Total.......................................             162       1,587,598           8,207             9.8
----------------------------------------------------------------------------------------------------------------

8. Daily Computation Based on Average Total Credits From the Most
Recent Calendar Year
    As an alternative to performing the customer and PAB reserve
computations daily based on a 12-month rolling average of total
credits, the Commission could instead require computation based on the
arithmetic mean of the sum of total credits over the 12 months in the
most recent calendar year. For example, whether a carrying-broker
dealer exceeded the $250 Million Threshold at any point in 2023, would
be based on the average total credits from January 2022 through
December 2022.
    The potential benefit of basing the average total credit amount on
the most recent calendar year is that carrying broker-dealers would
know with certainty if they fell above or below the proposed $250
Million Threshold and would be subject to daily or weekly computing for
the entirety of the next calendar year. This potential benefit
contrasts with the possible uncertainty that the rolling average
computation would introduce for carrying broker-dealers that are close
to the proposed $250 Million Threshold. That uncertainly may create an
added cost for those carrying broker-dealers as they would need to
constantly monitor their standing with respect to the $250 Million
Threshold. This monitoring may involve additional staff, or existing
staff devoting additional time to that task, and suggests the cost of
the proposal may be marginally higher for some carrying broker-dealers
than the cost estimates cited earlier in this release.\158\ Or, wishing
to avoid this monitoring cost, the carrying broker-dealer may have to
decide to switch to daily (or weekly) once and for all, which may also
imply additional costs.
---------------------------------------------------------------------------

    \158\ See infra section V. of this release (discussing PRA).
---------------------------------------------------------------------------

    However, a potential cost of this alternative is that, over the
course of a year, a carrying broker-dealer computing weekly (for
example) may exceed the $250 Million Threshold. This may result in a
situation where a carrying broker-dealer with average total credits
above the $250 Million Threshold would not

be engaging in daily computation--as they would with a timelier and up-
to-date rolling average--and the risks of weekly computing discussed in
this release would remain present for that carrying broker-dealer.

F. Request for Comment

    The Commission requests comment on all aspects of the economic
analysis of the proposed amendments. To the degree possible, the
Commission requests that commenters provide supporting data and
analysis with respect to the benefits, costs, and effects on
competition, efficiency, and capital formation of adopting the proposed
amendments or any reasonable alternatives. In particular, the
Commission ask commenters to consider the following questions:
    18. What additional qualitative or quantitative information should
be considered as part of the baseline for the economic analysis of
these amendments?
    19. Are the benefits and costs of proposed amendments accurately
characterized? If not, why not? Should any of the costs or benefits be
modified? What, if any, other costs or benefits should be taken into
account? If possible, please offer ways of estimating these benefits
and costs. What additional considerations can be used to estimate the
benefits and costs of the proposed amendments?
    20. Are the effects on competition, efficiency, and capital
formation arising from the proposed amendments accurately
characterized? If not, why not?
    21. Is the statement related to carrying broker-dealers with
greater economies of scale gaining a competitive advantage, in the case
that any increased costs of compliance are passed onto customers to a
lesser degree, accurately characterized? If not, why not?
    22. Are the statements related to an increase in liquidity in
securities markets, arising from a promotion of confidence in the
broker-dealer industry, and/or more efficient management of funds due
to lower likelihood of mismatch, accurately characterized? If not, why
not?
    23. Are the statements related to operational efficiency increasing
because of carrying broker-dealers' potential ability to withdraw
excess funds in a timelier manner and thus, manage their funds and
operations more effectively, accurately characterized? If not, why not?
    24. Are the economic effects of the above alternatives accurately
characterized? If not, why not? Should any of the costs or benefits be
modified? What, if any, other costs or benefits should be taken into
account?
    25. Are there other reasonable alternatives to the proposed
amendments that should be considered? What are the costs, benefits, and
effects on competition, efficiency, and capital formation of any other
alternatives?
    26. Is the statement related to larger carrying broker-dealers'
economies of scale accurately characterized? If not, why not? Should
any of the costs or benefits be modified? What, if any, other costs or
benefits should be taken into account? If possible, please offer ways
of estimating these benefits and costs. What additional considerations
can be used to estimate the benefits and costs of the proposed
amendments?

V. Paperwork Reduction Act

    The proposed amendments to paragraph (e) of Rule 15c3-3 contain
``collection of information'' requirements within the meaning of the
Paperwork Reduction Act (``PRA'').\159\ The Commission is submitting
the proposed collection of information to the Office of Management and
Budget (``OMB'') for review and approval in accordance with the PRA and
its implementing regulations.\160\ For the proposed amendments, the
title of the existing information collection is ``Customer Protection--
Reserves and Custody of Securities'' (OMB Control No. 3235-0078), and
that collection would be revised by the changes in this proposal, if
adopted. An agency may not conduct or sponsor, and a person is not
required to respond to, a collection of information unless it displays
a currently valid OMB control number.\161\
---------------------------------------------------------------------------

    \159\ See 44 U.S.C. 3501 et seq.
    \160\ See 44 U.S.C. 3507; 5 CFR 1320.11.
    \161\ See 5 CFR 1320.11(l).
---------------------------------------------------------------------------

    The burden estimates contained in this section do not include any
other possible costs or economic effects beyond the burdens required to
be calculated for PRA purposes.

A. Summary of Collections of Information Under the Proposed Rule
Amendments

    Rule 15c3-3 requires each carrying broker-dealer to maintain a
reserve of cash and/or qualified securities in a customer reserve bank
account that is at least equal in value to the net cash owed to
customers.\162\ Carrying broker-dealers also maintain a reserve of cash
and/or qualified securities in a PAB reserve bank account in an amount
that is at least equal in value to the net cash owed to PAB account
holders.\163\ In order to determine the amount required to be deposited
in the customer reserve bank account and the PAB reserve bank account,
Rule 15c3-3 requires carrying broker-dealers to perform weekly customer
and PAB reserve computations as of the close of the last business day
of each week.\164\ The rule also requires carrying broker-dealers to
make a record of each such computation.\165\
---------------------------------------------------------------------------

    \162\ 17 CFR 240.15c3-3(e). See also section I.B.1. of this
release (discussing the customer reserve requirements of Rule 15c3-3
in more detail).
    \163\ 17 CFR 240.15c3-3(e). See also section I.B.2. of this
release (discussing the PAB account holder reserve requirements of
Rule 15c3-3 in more detail).
    \164\ 17 CFR 240.15c3-3(e). Rule 15c3-3 also permits certain
broker-dealers to perform their reserve computations monthly. 17 CFR
240.15c3-3(e)(3)(i) and (iii). Some carrying broker-dealers also
elect to perform daily customer and PAB reserve computations. 17 CFR
240.15c3-3(e)(3)(iv).
    \165\ 17 CFR 240.15c3-3(e)(3)(v).
---------------------------------------------------------------------------

    Under the proposed amendments, carrying broker-dealers with average
total credits equal to or greater than $250 million would be required
to perform the customer and PAB reserve computations daily instead of
weekly, and would also be required to make a record of each such daily
computation.\166\ The proposed amendments also provide that a carrying
broker-dealer performing daily customer and PAB reserve computations
may elect to perform weekly computations if its average total credits
fall below $250 million and it notifies its designated examining
authority, in writing, of this election at least 60 calendar days prior
to starting weekly computations.\167\
---------------------------------------------------------------------------

    \166\ See paragraph (e)(3)(i)(B)(1) of Rule 15c3-3, as proposed
to be amended.
    \167\ See paragraph (e)(3)(i)(B)(2) of Rule 15c3-3, as proposed
to be amended.
---------------------------------------------------------------------------

B. Proposed Use of the Information

    Rule 15c3-3 is an integral part of the Commission's financial
responsibility program for broker-dealers. The requirement to document
in writing the customer and PAB reserve computations facilitates the
process by which the Commission and the broker-dealer's designated
examining authority examines the broker-dealer's compliance with Rule
15c3-3. The purpose of the proposed 60-day prior written notice
requirement is to provide the designated examining authority with prior
notice that the carrying broker-dealer is switching from daily to
weekly customer and PAB reserve computations and provide the designated
examining authority the opportunity to contact the firm and ask how it
intends to implement the change. This would assist the designated
examining authority in monitoring the firm.

C. Respondents

1. Recordkeeping Requirements
    Respondents under the proposed amendments would be carrying broker-
dealers with average total credits equal to or exceeding $250 million.
The Commission estimates there are currently approximately 63 carrying
broker-dealers that would have average total credits equal to or
exceeding $250 million based on a review of FOCUS Report data for the
12 months ended December 31, 2022. Of these carrying broker-dealers,
the Commission estimates that 11 already perform the customer reserve
computation daily. Of the 63 carrying broker-dealers that would have
average total credits equal to or exceeding $250 million, the
Commission estimates that 49 have total credits relating to PAB account
holders of greater than $0, with 10 of these carrying broker-dealers
already performing the PAB reserve computation daily. Consequently, for
the purposes of the PRA, the Commission estimates that there are 52
respondents for the customer reserve computation, and 39 respondents
for the PAB reserve computation. These respondents are currently
included in the collection of information associated with Rule 15c3-3
related to weekly computations for the customer and PAB reserve
computations. However, as a result of the proposed amendments, these
respondents would need to perform daily customer and PAB reserve
computations (rather than weekly computations).
2. Notification Requirement
    Based on a review of FOCUS Report data for the 2022 calendar year,
the Commission preliminarily estimates that one carrying broker-dealer
per year would provide notice to their designated examining authority
that the carrying broker-dealer's average total credits has fallen
below the $250 Million Threshold, and that such carrying broker-dealer
would switch from a daily computation to a weekly computation.

D. Total Annual Burden Estimate

1. Recordkeeping Requirements
    Carrying broker-dealers that would be subject to the requirement to
perform daily customer and PAB reserve computations under this proposal
are required to perform such computations weekly. Therefore, the
Commission preliminarily estimates that the proposed amendments would
not impose any new one-time burdens on carrying broker-dealers to set
up the process of creating the required record of the computations.
Instead, the Commission preliminarily believes the proposed amendments
would impose increased ongoing burdens on the respondent carrying
broker-dealers because they would be required to increase the frequency
of the customer and PAB reserve computations and, therefore, produce
additional records of the computations.
    Specifically, the Commission believes that there would be an
increase in the burdens associated with the collections of information
titled ``Rule 15c3-3(e)(3)--daily computations'' for both the customer
and PAB reserve computations, and a corresponding decrease in the
burdens associated with the collections of information titled ``Rule
15c3-3(e)(3)--weekly computations'' for the customer and PAB reserve
computations as certain carrying broker-dealers will be required to
shift from weekly to daily computations in connection with the proposed
amendments. Based on experience with customer and PAB reserve
computations, the Commission preliminary estimates that it takes
between one and five hours to make a record of each such computation,
and that the average time spent across all of the firms is 2.5
hours.\168\
---------------------------------------------------------------------------

    \168\ This is consistent with the current collection of
information for the customer and PAB reserve computations.
---------------------------------------------------------------------------

    As a result, the Commission estimates that the proposed amendments
would impose aggregate annual ongoing burdens on respondent carrying
broker-dealers required to perform daily customer and PAB reserve
computations of 32,500 hours and 24,375 hours, respectively, or a total
of 56,875 hours.\169\ When added to the currently approved burden hours
of 7,500 hours and 1,875 hours for the customer and PAB reserve
computations, respectively, the proposed revised burden hour estimates
would be 40,000 hours for the daily customer reserve computation, and
26,250 hours for the daily PAB reserve computation.
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    \169\ This figure was calculated as follows: 52 respondent
carrying broker-dealers that would be required to perform daily
customer reserve computations x 2.5 hours/day x 250 business days =
32,500 hours, plus 39 respondent carrying broker-dealers that would
be required to perform daily PAB reserve computations x 2.5 hours/
day x 250 business days = 24,375 hours. Therefore, the total
estimated burden is 32,500 hours + 24,375 hours = 56,875 hours.
---------------------------------------------------------------------------

    In addition to this increase, the Commission preliminarily
estimates that there will be a corresponding decrease in the
collections of information titled ``Rule 15c3-3(e)(3)--weekly
computations'' for both the customer and PAB reserve computations.
Specifically, the Commission preliminarily estimates that the proposed
amendments would result in a revised burden hour estimate of 14,430
hours with respect to weekly customer reserve computations,\170\ (a
decrease of 6,760 hours) \171\ and 2,210 hours with respect to the
weekly PAB reserve computations \172\ (a decrease of 5,070 hours).\173\
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    \170\ This figure was calculated as follows: 163 respondents
currently approved under the information collection related to
weekly customer reserve computations titled ``Rule 15c3-3(e)(3)--
weekly computations'' minus the 52 respondent carrying broker-
dealers that would be required under the proposed amendments to
perform daily customer reserve computations = 111 respondents x 2.5
hours x 52 responses annually = 14,430 hours.
    \171\ This figure was calculated as follows: 21,190 burden hours
currently approved with respect to the collection of information
related to weekly customer reserve computations minus the revised
proposed estimate of 14,430 hours resulting from fewer respondents
performing weekly computations = 6,760 hours.
    \172\ This figure was calculated as follows: 56 respondents
currently approved under the information collection related to
weekly PAB reserve computations titled ``Rule 15c3-3(e)(3)--weekly
computations'' minus the 39 respondent carrying broker-dealers that
would be required under the proposed amendments to perform daily PAB
reserve computations = 17 respondents x 2.5 hours x 52 responses
annually = 2,210 hours.
    \173\ This figure was calculated as follows: 7,280 burden hours
currently approved with respect to the collection of information
related to weekly PAB reserve computations minus the revised
proposed estimate of 2,210 hours resulting from fewer respondents
performing weekly computations = 5,070 hours.
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2. Notification Requirement
    Based on its experience with other notification requirements, the
Commission preliminarily estimates that it would take a carrying
broker-dealer 30 minutes to prepare and send the notification regarding
its election to perform weekly customer and PAB reserve computations to
its designated examining authority. This burden would represent a new
collection of information. The Commission preliminarily estimates that
relatively few carrying broker-dealers would send the notice either
because their average total credits would be substantially greater than
$250 million or because they would continue to perform daily
computations even if their average total credits fell below the $250
Million Threshold, given the liquidity benefits of performing a daily
computation. Consequently, the Commission preliminarily estimates that
one carrying broker-dealer per year would send the notice for a burden
of 0.5 hours per year.\174\
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    \174\ One response per year x 0.5 hours per response = 0.5
hours.

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3. Summary of the Proposed Burden Revisions \175\
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    \175\ OMB Control No. 3235-0078 for Rule 15c3-3 includes thirty
separate information collections. This summary show only those
information collections that would be revised as a result of the
proposed amendments.
---------------------------------------------------------------------------

    As a result of the proposed amendments, the burdens associated with
daily computations for customer reserve accounts would increase by
32,500 hours and the burdens associated with daily computations for PAB
reserve accounts would increase by 24,375 hours. This increase would be
accompanied by a decrease in burdens associated with weekly
computations for customer and PAB reserve accounts of 6,760 hours and
5,070 hours, respectively, as carrying broker-dealers with average
total credits of $250 million or more shift from performing the
customer and PAB reserve computations on a weekly to daily basis.
    Additionally, a new collection of information related to the
notification requirement for carrying broker-dealers reverting to a
weekly computation of the customer and PAB reserve formulas will result
in an addition 0.5 burden hours per year.
    The net increase in estimated annual burdens associated with the
proposed amendments to Rule 15c3-3 would be 45,045.5 hours. The table
below summarizes these changes.

----------------------------------------------------------------------------------------------------------------
                                                                         Proposed estimated
                                                Currently approved     increase/ decrease in    Proposed revised
       Name of information collection            estimated annual      annual industry burden   annual industry
                                             industry burden (hours)          (hours)            burden (hours)
----------------------------------------------------------------------------------------------------------------
Rule 15c3-3(e)(3)--daily computations for                      7,500                   32,500             40,000
 customer reserve account \1\..............
Rule 15c3-3(e)--daily computations for PAB                     1,875                   24,375             26,250
 reserve account \2\.......................
Rule 15c3-3(e)(3)--weekly computations for                    21,190                  (6,760)             14,430
 customer reserve account \3\..............
Rule 15c3-3(3)(3)--weekly computations for                     7,280                  (5,070)              2,210
 PAB reserve account \4\...................
Rule 15c3-3(e)(B)(1) notification..........                      N/A                      0.5                0.5
----------------------------------------------------------------------------------------------------------------
    Total proposed change..................  .......................                 45,045.5
----------------------------------------------------------------------------------------------------------------
1. In the most recently approved supporting statement for Rule 15c3-3, the title of this collection of
  information is ``Rule 15c3-3(e)(3)--daily computations.'' The Commission is revising the title of this
  collection of information in order to clarify that it is distinct from the collection of information related
  to daily computations for PAB reserve accounts, which currently shares the same title.
2. In the most recently approved supporting statement for Rule 15c3-3, the title of this collection of
  information is ``Rule 15c3-3(e)(3)--daily computations.'' The Commission is revising the title of this
  collection of information in order to clarify that it is distinct from the collection of information related
  to daily computations for customer reserve accounts, which currently shares the same title.
3. In the most recently approved supporting statement for Rule 15c3-3, the title of this collection of
  information is ``Rule 15c3-3(e)(3)--weekly computations.'' The Commission is revising the title of this
  collection of information in order to clarify that it is distinct from the collection of information related
  to weekly computations for PAB reserve accounts, which currently shares the same title.
4. In the most recently approved supporting statement for Rule 15c3-3, the title of this collection of
  information is ``Rule 15c3-3(e)(3)--weekly computations.'' The Commission is revising the title of this
  collection of information in order to clarify that it is distinct from the collection of information related
  to weekly computations for customer reserve accounts, which currently shares the same title.

E. Collections of Information Are Mandatory

    The collections of information under the proposed amendments to
Rule 15c3-3 would be mandatory as to the carrying broker-dealers that
would be subject to them.

F. Confidentiality of Response to Collections of Information

    The Commission expects to receive confidential information in
connection with the collections of information. A carrying broker-
dealer requested by the Commission to produce records related to the
proposed amendments under Rule 15c3-3 could request confidential
treatment of the information.\176\ If a confidential treatment request
was made, the Commission anticipates that it would keep the information
confidential subject to applicable law.\177\
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    \176\ See 17 CFR 200.83. Information regarding requests for
confidential treatment of information submitted to the Commission is
available on the Commission's website at https://www.sec.gov/foia/howfo2.htm#privacy.
    \177\ See, e.g., 15 U.S.C. 78x (governing the public
availability of information obtained by the Commission); 5 U.S.C.
552 et seq.
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G. Retention Period for Recordkeeping Requirements

    The customer and PAB reserve computations must be preserved in
accordance with the requirements of Rule 17a-4.\178\ Written
notifications from carrying broker-dealers electing to compute the
customer and PAB reserve formulas weekly after being subject to the
daily requirement would be submitted to the carrying broker-dealer's
designated examining authority. These notices would constitute
communications relating to a carrying broker-dealer's ``business as
such'' and, therefore, will need to be retained for three years.\179\
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    \178\ See 17 CFR 240.15c3-3(e)(3)(v); 17 CFR 240.17a-4.
    \179\ See 17 CFR 240.17a-4(b)(4).
---------------------------------------------------------------------------

H. Request for Comment

    Pursuant to 44 U.S.C. 3506(c)(2)(B), the Commission solicits
comments to:
    27. Evaluate whether the proposed collections of information are
necessary for the proper performance of the Commission's functions,
including whether the information shall have practical utility;
    28. Evaluate the accuracy of the Commission's estimates of the
burdens of the proposed collections of information;
    29. Determine whether there are ways to enhance the quality,
utility, and clarity of the information to be collected;
    30. Evaluate whether there are ways to minimize the burden of
collection of information on those who are to respond, including
through the use of automated collection techniques or other forms of
information technology; and
    31. Evaluate whether the proposed rules and rule amendments would
have any effects on any other collection of information not previously
identified in this section.
    Persons submitting comments on the collection of information
requirements

should direct them to the Office of Management and Budget, Attention:
Desk Officer for the Securities and Exchange Commission, Office of
Information and Regulatory Affairs, Washington, DC 20503, and should
also send a copy of their comments to Secretary, Securities and
Exchange Commission, 100 F Street NE, Washington, DC 20549-1090, with
reference to File Number S7-11-23. Requests for materials submitted to
OMB by the Commission with regard to this collection of information
should be in writing, with reference to File Number S7-11-23 and be
submitted to the Securities and Exchange Commission, Office of FOIA/PA
Services, 100 F Street NE, Washington, DC 20549-2736. As OMB is
required to make a decision concerning the collection of information
between 30 and 60 days after publication, a comment to OMB is best
assured of having its full effect if OMB receives it within 30 days of
publication.

VI. Small Business Regulatory Enforcement Fairness Act

    Under the Small Business Regulatory Enforcement Fairness Act of
1996,\180\ a rule is ``major'' if it has resulted, or is likely to
result in: an annual effect on the economy of $100 million or more; a
major increase in costs or prices for consumers or individual
industries; or significant adverse effects on competition, investment,
or innovation. The Commission requests comment on whether the proposed
rules and rule amendments would be a ``major'' rule for purposes of the
Small Business Regulatory Enforcement Fairness Act. In addition, the
Commission solicits comment and empirical data on: the potential effect
on the U.S. economy on annual basis; any potential increase in costs or
prices for consumer or individual industries; and any potential effect
on competition, investment, or innovation.
---------------------------------------------------------------------------

    \180\ Public Law 104-121, Title II, 110 Stat. 857 (1996).
---------------------------------------------------------------------------

VII. Regulatory Flexibility Act Certification

    The Regulatory Flexibility Act (``RFA'') requires the Commission,
in promulgating rules, to consider the impact of those rules on small
entities.\181\ Section 603(a) of the Administrative Procedure Act,\182\
as amended by the RFA, generally requires the Commission to undertake a
regulatory flexibility analysis of all proposed rules to determine the
impact of such rulemaking on ``small entities.'' \183\ Section 605(b)
of the RFA states that this requirement shall not apply to any proposed
rule which, if adopted, would not have a significant economic impact on
a substantial number of small entities.\184\
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    \181\ See 5 U.S.C. 601 et seq.
    \182\ 5 U.S.C. 603(a).
    \183\ Section 601(b) of the RFA permits agencies to formulate
their own definitions of ``small entities.'' See 5 U.S.C. 601(b).
The Commission has adopted definitions for the term ``small entity''
for the purposes of rulemaking in accordance with the RFA. These
definitions, as relevant to this proposed rulemaking, are set forth
in 17 CFR 240.0-10 (``Rule 0-10'').
    \184\ See 5 U.S.C. 605(b).
---------------------------------------------------------------------------

    For purposes of Commission rulemaking in connection with the RFA, a
small entity includes a broker-dealer that: (1) had total capital (net
worth plus subordinated liabilities) of less than $500,000 on the date
in the prior fiscal year as of which its audited financial statements
were prepared pursuant to paragraph (d) of 17 CFR 240.17a-5 (Exchange
Act Rule 17a-5(d)),\185\ or, if not required to file such statements, a
broker-dealer with total capital (net worth plus subordinated
liabilities) of less than $500,000 on the last business day of the
preceding fiscal year (or in the time that it has been in business, if
shorter); and (2) is not affiliated with any person (other than a
natural person) that is not a small business or small
organization.\186\
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    \185\ 17 CFR 240.17a-5(d).
    \186\ See 17 CFR 240.0-10(c).
---------------------------------------------------------------------------

    The proposed rule amendments to Rule 15c3-3 would require certain
carrying broker-dealers to perform the customer and PAB reserve
computations on a daily rather than weekly basis. Only carrying broker-
dealers would be impacted by the proposed rule amendment.
    Based on FOCUS Report data, the Commission estimates that as of
December 31, 2022, there were approximately 790 broker-dealers that
were ``small'' for the purposes of Rule 0-10. The Commission estimates
that none of these small broker-dealers is a carrying broker-dealer. As
a result, the proposed rule amendments likely would not apply to small
broker-dealers. Therefore, the Commission believes that the proposed
amendments would not have a significant impact on a substantial number
of small broker-dealers.
    For the foregoing reasons, the Commission certifies that the
proposed amendments to Rule 15c3-3, if adopted, would not have a
significant economic impact on a substantial number of small entities
for purposes of the RFA. The Commission requests comment regarding this
certification. The Commission invites commenters to address whether the
proposed amendments to Rule 15c3-3 would have a significant economic
impact on a substantial number of small entities, and, if so, what
would be the nature of any impact on small entities. The Commission
requests that commenters provide empirical data to support the extent
of such impact.

Statutory Authority

    The Commission is proposing amendments to Rule 15c3-3 under the
Commission's rulemaking authority pursuant to the Exchange Act, 15
U.S.C. 78a et seq., and particularly, sections 15 and 23(a) (15 U.S.C.
78o and 78w(a)), thereof.

List of Subjects in 17 CFR Part 240

    Reporting and recordkeeping requirements, Securities.

Text of Amendments

    In accordance with the foregoing, title 17, chapter II of the Code
of Federal Regulations is proposed to be amended as follows:

PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF
1934

0
1. The authority citation for part 240 continues to read, in part, as
follows:

    Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3,
77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78c-3, 78c-5,78d, 78e, 78f,
78g, 78i, 78j, 78j-1, 78j-4, 78k, 78k-1, 78l, 78m, 78n, 78n-1, 78o,
78o-4, 78o-10, 78p, 78q, 78q-1, 78s, 78u-5, 78w, 78x, 78dd, 78ll,
78mm, 80a-20, 80a-23, 80a-29, 80a-37, 80b-3, 80b-4, 80b-11, 7201 et
seq., and 8302; 7 U.S.C. 2(c)(2)(E); 12 U.S.C. 5221(e)(3); 18 U.S.C.
1350; and Pub. L. 111-203, 939A, 124 Stat. 1376 (2010); and Pub. L.
112-106, sec. 503 and 602, 126 Stat. 326 (2012), unless otherwise
noted.
* * * * *
    Section 240.15c3-3 is also issued under 15 U.S.C. 78c-5,
78o(c)(2), 78(c)(3), 78q(a), 78w(a); sec. 6(c), 84 Stat. 1652; 15
U.S.C. 78fff.
* * * * *
0
2. Section 240.15c3-3 is amended by revising paragraphs (e)(3)(i) and
(iv) to read as follows:

Sec.  240.15c3-3  Customer protection--reserves and custody of
securities.

* * * * *
    (e) * * *
    (3) * * *
    (i)(A) Except as provided in paragraphs (e)(3)(i)(B)(1) and (C) of
this section, computations necessary to determine the amount required
to be deposited in the Customer Reserve Bank Account and PAB Reserve
Bank Account as specified in paragraph (e)(1)

of this section must be made weekly, as of the close of the last
business day of the week, and the deposit so computed must be made no
later than one hour after the opening of banking business on the second
following business day.
    (B)(1) A broker or dealer with average total credits that are equal
to or greater than $250 million must make the computations necessary to
determine the amount required to be deposited in the Customer Reserve
Bank Account and PAB Reserve Bank Account, as specified in paragraph
(e)(1) of this section, daily as of the close of the previous business
day, and the deposit so computed must be made no later than one hour
after the opening of banking business on the second following business
day. A broker or dealer must comply with this paragraph (e)(3)(i)(B)(1)
no later than six months after having average total credits equal to or
greater than $250 million and until such time as it has average total
credits of less than $250 million and 60 days after having provided the
60-day notice required by paragraph (e)(3)(i)(B)(2) of this section.
For purposes of this paragraph (e)(3), average total credits means the
arithmetic mean of the sum of Total Credits in the Customer Reserve
Bank Account computation and the PAB Reserve Bank Account computation
reported in the 12 most recently filed month-end Forms X-17A-5.
    (2) A broker or dealer computing the Customer Reserve Bank Account
computation and the PAB Reserve Bank Account computation daily under
paragraph (e)(3)(i)(B)(1) of this section whose average total credits
falls below $250 million may elect to compute the Customer Reserve Bank
Account and the PAB Reserve Bank Account computation weekly under
paragraph (e)(3)(i)(A) of this section. Such broker or dealer must
notify its designated examining authority, in writing, of this election
at least 60 calendar days before computing the Customer Reserve Bank
Account and the PAB Reserve Bank Account computation weekly under
paragraph (e)(3)(i)(A) of this section.
    (C) A broker or dealer which has aggregate indebtedness not
exceeding 800 percent of net capital (as defined in Sec.  240.15c3-1)
and which carries aggregate customer funds (as defined in paragraph
(a)(10) of this section), as computed at the last required computation
pursuant to this section, not exceeding $1,000,000, may in the
alternative make the Customer Reserve Bank Account computation monthly,
as of the close of the last business day of the month, and, in such
event, must deposit not less than 105 percent of the amount so computed
no later than one hour after the opening of banking business on the
second following business day.
* * * * *
    (iv) Computations in addition to the computations required in this
paragraph (e)(3), other than computations made under paragraph
(e)(3)(i)(B)(1) of this section, may be made as of the close of any
business day, and the deposits so computed must be made no later than
one hour after the opening of banking business on the second following
business day.
* * * * *

    By the Commission.

    Dated: July 12, 2023.
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2023-15200 Filed 7-17-23; 8:45 am]
BILLING CODE 8011-01-P