Young broker businesswoman discussing with two other businessmen how to maintain broker dealer compliance


To clarify exemption rules for non-carrying broker dealers, the U.S. Securities and Exchange Commission (SEC) and FINRA have provided an alternative option to maintain broker dealer audit compliance under SEC Rule 15c3-3. Let’s take a look at how your broker dealer firm can ensure the correct exemptions are being claimed.


Protecting Funds For Clients 

SEC Rule 15c3-3 is designed to protect client accounts at security brokerage firms. This rule dictates the amount of cash and securities that broker dealer firms must keep in specially protected accounts on behalf of clients. However, broker dealer firms that do not carry customer funds may be eligible for an exemption.


SEC Rule 15c3-3 & Exemptions for Broker Dealers

Historically, broker dealers who are not required to maintain a net capital amount and do not fit squarely into the exemptions of SEC Rule 15c3-3 have used one of the exemptions under SEC Rule 15c3-3(k) for each of their business activities. These (k) exemptions include:

  • (k)(1) – This is a limited business model that is restricted to broker dealers involved in only a mutual fund or variable annuity business.
  • (k)(2)(i) – This exemption applies to broker dealer firms that do not carry margin accounts and promptly transmit all customer funds received. This type of broker dealer firm does not carry or hold funds or securities for customers and uses a special bank account for financial transactions with customers.
  • (k)(2)(ii) – This exemption is for broker dealers who do all business through a clearing firm, and all business is fully disclosed.
  • (k)(3) – This provision is reserved for a broker dealer who does not fall under the other exemption provisions but has submitted a written application to the SEC and been approved for exemption status.


An Alternative to 15c3-3 for Non-Carrying Broker Dealers

Many broker dealer firms who are not required to maintain a special account and do not meet the exact exemptions of SEC Rule 15c3-3 have selected the 15c3-3(k)(2)(ii) option, as it was the least incorrect. To provide guidance, in July 2020, the SEC and FINRA re-issued Footnote 74 to provide clear guidelines for these firms.


Maintaining Broker Dealer Compliance With Footnote 74

For the broker dealer firms that do not neatly into an exemption under 15c3-3(k), Footnote 74 outlines a new category of broker dealer firms, known as a Non-Covered Firm. A Non-Covered Firm is eligible to file an Exemption Report instead of a Compliance Report. A Non-Covered Firm does not claim an exemption from SEC Rule 15c3-3 in its FOCUS Report and should explain its non-covered status in the Memo Item of the FOCUS Report.



Are You Eligible for Multiple Exemptions?

Per the SEC Rule, broker dealer firms are required to claim an exemption for each of their business activities. Contact your auditor to discuss if this applies to your broker dealer firm.


Have Any Questions? 

Assurance Dimensions is a registered PCAOB firm that provides audit and assurance services to securities brokers located throughout the United States. Our broker dealer auditors use the latest industry best practices to stay on top of changes in the regulatory environment and help firms maintain compliance. Contact us if you have any questions about future broker dealer audits.