SEC raises broker-dealer exemption threshold for Exchange Act risk assessment rules to $100 million

In a February 24 order (Release No. 34-104881), the SEC amended and restated an exemption under Section 17(h)(4) of the Securities Exchange Act of 1934, from the requirements of Rule 17h-1T and Rule 17h-2T, for additional broker-dealers with total assets of less than $1 billion and capital of less than $100 million.

The SEC described the latter Rule 17h-1T as requiring broker-dealers to maintain and preserve specified records, including an organizational chart covering the broker-dealer and its affiliates, policies and procedures for monitoring and controlling affiliate-related risks, descriptions of material pending legal and arbitration proceedings involving the broker-dealer or its affiliates, financial statements, and position records. Likewise, the SEC described Rule 17h-2T as requiring quarterly filing of Form 17-H with the SEC regarding certain affiliate information.

The SEC stated that, under the February 24 order, a broker-dealer that does not hold or owe customer funds or securities and does not carry customer accounts (a “non-carrying broker-dealer”), or that is exempt from Rule 15c3-3 under paragraph (k)(2), is exempt from Rules 17h-1T and 17h-2T, as long as it maintains total assets of less than $1 billion (FOCUS Report line item 940) and capital of at least $20 million but less than $100 million (FOCUS Report line item 3530).

The SEC said the order raises the prior $50 million capital threshold to $100 million, while not altering the $1 billion total asset threshold. Additionally, the order supersedes and replaces the SEC’s June 29, 2020, exemptive order (published in the Federal Register on July 6, 2020) that had exempted certain non-carrying broker-dealers with capital greater than $20 million but less than $50 million.