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SEC no-action letter relating to prime brokerage: Difference between revisions
SEC no-action letter relating to prime brokerage (view source)
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The prime broker committee, chaired by Bear Stearns (remember them?) sought clarity from the SEC that a normal PB settlement would not be. It proposed to treat the “trade settlement” transaction between the [[prime broker]] and [[executing broker]] as an inter-dealer (principal) trade even though theoretically executed as [[agent]] for the customer. The SEC granted it, in the no-action letter. | The prime broker committee, chaired by Bear Stearns (remember them?) sought clarity from the SEC that a normal PB settlement would not be. It proposed to treat the “trade settlement” transaction between the [[prime broker]] and [[executing broker]] as an inter-dealer (principal) trade even though theoretically executed as [[agent]] for the customer. The SEC granted it, in the no-action letter. | ||
==Terms== | |||
The SEC Enfrocement Division will not recommend that the Commission take enforcement action if, under such a prime broker arrangement, the executing broker and prime broker treat the customer account as if it were a broker-dealer credit account under [[Regulation T]] and: | The SEC Enfrocement Division will not recommend that the Commission take enforcement action if, under such a prime broker arrangement, the executing broker and prime broker treat the customer account as if it were a broker-dealer credit account under [[Regulation T]] and: | ||
====1-3 The PB and EB==== | ====1-3 The PB and EB==== | ||
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The EB must comply with all the applicable short sale provisions and, before executing any [[short sale]] must determine that the securities can be borrowed to deliver against the [[short sale]]. | The EB must comply with all the applicable short sale provisions and, before executing any [[short sale]] must determine that the securities can be borrowed to deliver against the [[short sale]]. | ||
====11. 10b-10 confirmations==== | ====11. 10b-10 confirmations==== | ||
The EB must send 10b-10-compliant trade confirmations to the customer for each trade placed under the PB arrangement. It may send these care of the [[prime broker]] where the customer has instructed this in writing (but the [[PB]] cannot make that instruction a condition to acting, nor give favourable fees to clients who give such an instruction. The [[PB]] must in any case make the confirmations available free of charge. | |||
The [[PB]] must send the customer 10b-10-compliant notifications of each trade placed with the [[executing broker]] pursuant to the prime broker arrangement, based on information provided by | |||
the customer. | |||
====12. EB records==== | |||
The EB must keep records of the PB trades per rule 17a-3. | |||
====13. DK procedure==== | |||
When the PB DKs a trade: | |||
*The prime broker must give the customer a notice of cancellation. | |||
*The EB must send a new 10b-10-compliant replacement confirmation. | |||
{{sa}} | {{sa}} | ||
*[https://www.sec.gov/divisions/marketreg/mr-noaction/pbroker012594-out.pdf The famous SEC no-action letter] | *[https://www.sec.gov/divisions/marketreg/mr-noaction/pbroker012594-out.pdf The famous SEC no-action letter] | ||
{{ref}} | {{ref}} | ||