15c3

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The Securities Exchange Act’s vaunted Rule 15c3, “Customer protection - reserves and custody of securities” was enacted in 1972 with the intention to protect client accounts at brokers following the 1968 Wall Street Paperwork Crunch — a financial markets disaster which curiously doesn’t get a lot of play these days even though it caused firms to fail and clients to lose money.

15c3 requires broker-dealers to segregate a portion of their cash and securities and keep them in protected accounts from which clients can withdraw their holdings on demand, even on insolvency of the broker-dealer.

Broker-dealers must, weekly, calculate what they and their clients owe each other and where the customer is a net creditor, lock up a portion in a “special reserve bank account for the exclusive benefit of customers.”

It's like a capital buffer.

Just the bit — 15c3-3 — that talks about rehypothecation (well it may do — personally i lost the will to live with 9 page definition of “Customer”) runs to 200 pages. Have fun.