On June 29th, the SEC issued an order to update the filing threshold for broker-dealers’ Form 17-H filings made pursuant to Exchange Act Rules 17h-1T and Rule 17h-2T. The threshold has not been updated in nearly 30 years. In 1992, the SEC adopted the 17h Rules, which set forth specified recordkeeping and reporting requirements for certain broker-dealers that are part of a holding company structure. This was pursuant to the Market Reform Act of 1990. Broker-dealers that do not hold customer funds or securities, owe money or securities to customers, or otherwise carry the accounts of or for customers are exempt from the 17h Rules. This exemption applied provided that these broker-dealers maintain capital, including subordinated debt, of less than $20 million.
The SEC’s Office of Inspector General published an order this year which stated that raising the reporting threshold for Form 17-H would, among other things, increase the overall efficiency of the Form 17-H filing intake along with its review processes. This change would also reduce the reporting burden on smaller broker-dealer firms. The new changes are in line with these recommendations by altering the filing threshold for the first time and providing an exemption from the 17h Rules for broker-dealers with capital between $20 million to $50 million so long as the broker-dealer maintains less than $1 billion in total assets. While continuing to provide important information to the SEC on the financial condition of covered broker-dealers and their affiliates, the changes now exempt certain smaller broker-dealers from the reporting requirements of the rules. Firms maintaining $50 million or more in capital, including subordinated debt, currently account for approximately 98 percent of the total capital of the broker-dealers subject to the 17h Rules; these firms will continue to remain subject to the rules.
The exemptive order is effective immediately.
Sources:
SEC Updates Filing Threshold to Rule 17h Reporting Requirements for Broker-Dealers (www.sec.gov)
Order Under Section 17(h)(4) of the Securities Exchange Act of 1934 Granting Exemption from Rule 17h-1T and Rule 17h-2T for Certain Broker-Dealers Maintaining Capital, Including Subordinated Debt of Greater than $20 Million but Less than $50 Million (www.sec.gov)
