The SEC Division of Trading and Markets granted "introducing" broker-dealers no-action relief in order to relieve certain administrative and operational burdens during the customer account opening process. The no-action relief concerns the requirements of Exchange Act Rule 15c3-3 ("Rule 15c3-3") for "introducing" broker-dealers (collectively, "introducing brokers").

Under the current process, these brokers introduce customer accounts to their carrying broker-dealer on a fully-disclosed basis pursuant to a written agreement. In connection with opening a new account with a carrying broker, customers will often fund the new account by providing the introducing broker with a check payable to the carrying broker. Moreover, in order for an introducing broker to be exempt from the requirements of Rule 15c3-3, it must transmit customer funds or securities no later than noon of the next business day after the receipt of such funds or securities.

The account opening process, which requires compliance with FINRA's "Know Your Customer," "Suitability" and anti-money laundering rules,  can be time- and resource-intensive. The introducing brokers' request for relief was "based on the difficulty, if not impossibility" for an introducing broker to forward such a check by noon of the next business day since the account has to be open before the introducing broker can forward the check. 

The relief granted by the Division permits an introducing broker to transmit a customer's check payable to a carrying broker-dealer after noon of the next business day following receipt thereof, while still being exempt from the requirements of Rule 15c3-3, provided that the purpose for holding the check is to complete the introducing broker's account opening process in compliance with applicable FINRA rules. In addition, the no-action relief requires the introducing brokers to:

  1. establish policies and procedures reasonably designed to ensure that customer checks are safeguarded;
  2. ensure that a registered representative of the member who takes possession of a check made payable to the carrying broker-dealer promptly transmits such checks to an Office of Supervisory Jurisdiction ("OSJ") of the introducing broker for processing;
  3. cause a registered principal to perform a review in accordance with FINRA Rule 2090 and determine whether to approve the account for opening within seven business days after an OSJ of the member receives a complete and correct application to open an account with the carrying broker-dealer, including a check made payable to the carrying broker-dealer;
  4. transmit the check to the carrying broker-dealer no later than noon of the business day following the date the registered principal determines whether to approve the opening of an account with a carrying broker-dealer;
  5. maintain a copy of each such check and create a record of the date the check was received from the customer and the date the check was transmitted to the carrying broker-dealer if the customer's account opening request is approved, or returned to the customer if rejected; and
  6. disclose to customers its process for handling customer checks payable to a carrying broker-dealer in conjunction with the requested opening of a new account with the introducing broker and the carrying broker-dealer.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.