Rule 15c3-5 -- Risk Management Controls for Brokers or Dealers with Market Access

OMB 3235-0673

OMB 3235-0673

Rule 15c3-5 would require brokers or dealers with access to trading directly on an exchange or ATS, including those providing sponsored or direct market access to customers or other persons, to implement risk management controls and supervisory procedures designed to manage the financial, regulatory, and other risks of this business activity. Specifically, Rule 15c3-5 would require that brokers or dealers with access to trading securities on an exchange or ATS, as a result of being a member or subscriber thereof, establish, document, and maintain a system of risk management controls and supervisory procedures that, among other things, are reasonably designed to (1) systematically limit the financial exposure of the broker or dealer that could arise as a result of market access, and (2) ensure compliance with all regulatory requirements that are applicable in connection with market access. Each such broker or dealer would be required to preserve a copy of its supervisory procedures and a written description of its risk management controls as part of its books and records in a manner consistent with Rule 17a-4(e)(7) under the Exchange Act. The financial and regulatory risk management controls and supervisory procedures required by Rule 15c3-5 generally must be under the direct and exclusive control of the broker or dealer with market access. Broker-dealers with market access are permitted to reasonably allocate certain required risk management controls and supervisory procedures to other broker-dealers that are participants in a particular market access arrangement. Regardless of how the risk management controls and supervisory procedures are allocated to other parties, the Rule affirms that the broker-dealer providing market access retains the ultimate responsibility over its market access business activity. In addition, a broker or dealer with market access would be required to establish, document, and maintain a system for regularly reviewing the effectiveness of the risk management controls and supervisory procedures and for promptly addressing any issues. Among other things, the broker or dealer would be required to review, no less frequently than annually, the business activity of the broker or dealer in connection with market access to assure the overall effectiveness of such risk management controls and supervisory procedures and document that review. Such review would be required to be conducted in accordance with written procedures and would be required to be documented. The broker or dealer would be required to preserve a copy of such written procedures, and documentation of each such review, as part of its books and records in a manner consistent with Rule 17a-4(e)(7) under the Exchange Act, and Rule 17a-4(b) under the Exchange Act, respectively. In addition, the Chief Executive Officer (or equivalent officer) of the broker or dealer would be required, on an annual basis, to certify that the risk management controls and supervisory procedures comply with Rule 15c3-5, and that the regular review described above has been conducted. Such certifications would be required to be preserved by the broker or dealer as part of its books and records in a manner consistent with Rule 17a-4(b) under the Exchange Act.

The latest form for Rule 15c3-5 -- Risk Management Controls for Brokers or Dealers with Market Access expires 2022-12-31 and can be found here.


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