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SEC proposes stripping preference of high-rated securities from B-D net capital rule

Apr 28 2011 Ted Knutson, Compliance Complete recommended

The Securities and Exchange Commission took another step Wednesday on the path required by section 939(e) of the Dodd-Frank Wall Street Reform and Consumer Protection Act to remove references to credit ratings from federal financial rules. The SEC proposed removing the preference for highly rated securities from the broker-dealer net capital "financial responsibility rules" – 15c3-1 under the Securities Exchange Act of 1934 – and from rule 15c3-3 governing the protection of customer funds. Comments on the proposal must be submitted within 60 days of publication in the Federal Register, which is imminent. The proposal would replace the preference for commercial paper, nonconvertible debt and preferred stock that is highly rated by credit rating agencies in brokers' net capital requirement with a lower haircut for financial instruments for which brokers have shown a method for establishing creditworthiness. Brokers could consider the following factors to the extent appropriate

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