US SEC Rule 15c3-3 Reserve Computation and Deposit Cadence Shifts to Daily
From weekly to daily — a significant change. Simply put, firms must ensure their computations are accurate.
Current situation: A time-consuming and resource-intensive process
A typically fraught weekly process
Because computations are performed only once each week, broker-dealers are unable to adjust reserve accounts to reflect intra-week activity. Additionally, and in contrast to the SEC’s Notice of Proposed Rulemaking (NPR) estimate of only 2.5 hours, the current process of executing computations requires a significant number of person days to timely complete. This often leads to commencing over the weekend. The process involves:
- Handling large-volume end-of-week data feeds from the stock record and other disparate sources
- Allocating the stock record in a conservative manner
- Making many adjustments that, for example, arise from completed reconciliations, price adjustments, inaccurate data, and which are often manually driven by exchanging PDFs, spreadsheets, or emails
- Running/re-running allocations and reserve computations results based on such adjustments
- Compiling the computation results by integrating balances, allocations, and other mandatory items often through manual inputs to spreadsheets
- Depositing/withdrawing funds to the Special Reserve Bank Account(s) by 10:00 am on the next business day following the computation date. Missing the deadline, requires firms to report a technical or hindsight deficiency to the regulators.
Expected situation: A significant shift with pitfalls for the unprepared
Complicated and recursive reserve calculations
These computations involve complex logic, huge volumes of data, allocation rules defined in terms of priorities, and alignment with the institution’s operating model, making the change from weekly to daily calculations very challenging.
Firms attempting to produce daily reserve calculations while relying upon existing processes may make significant errors that may cause customers to be inadequately protected, and result in regulatory violations and costly fines for the institutions themselves.
Without automating data ingestion, allocations, adjustments, compilations, and reserve calculation processes, firms’ ability to accurately perform their daily calculations is at risk.
A holistic and strategic approach for successful reporting
To avoid the pitfalls of this transition, a firm’s system should have the ability to:
- Incorporate all aspects of the computations into a single platform for improved transparency, accuracy, and efficiency
- Source required records (such as general ledger, trial balance, subsidiary ledgers, and stock records) and automatically load them into the reserve computations
- Accurately allocate the stock record (or combine multiple stock records prior to allocation) according to parameters set by each firm, including allocations based on market or contract value
- Automate adjustments, reconcile to subsidiary records, drill down to results, perform comparisons to previous computations, and incorporate permissioning and four-eyes checks
A wakeup call to action, with hidden benefits
- More dynamically match the net amount of funds owed to customers and to PAB account holders with the required deposit in the broker-dealers’ Special Reserve Bank Accounts
- Better manage daily liquidity
- Utilize resources more efficiently
Indeed, some firms have already addressed this lack of automation and streamlined their data processing. Ahead of the rule change, they are reaping the benefits of a faster and more accurate reserve process.
Heed the call
Daily reserve calculation is a wakeup call to firms to transform and modernize; an opportunity to rethink their front-to-back architecture and identify breaking points, with a special focus on adjustments, and fix them.
With a holistic and strategic approach, firms can use the SEC Rule 15c3-3 daily reserve calculations to their advantage. Daily insight gives firms the ability to manage liquidity more dynamically, so they do not have to unnecessarily tie up capital on any day and can more adequately protect their customers.
