JPMorgan has formed a new team within its Clearance and Collateral Management division in New York to introduce a regulatory cash collateral service targeted at broker/dealers who need to comply with the Security and Exchange Commission (SEC)’s customer protection Rule 15c3-3.
The bank says the new service aims to give financial institutions the opportunity to either diversify 15c3-3 balance requirements from current investments or to satisfy requirements in cash without limitations relating such deposits to a percentage of the broker/dealer’s excess net capital. In essence, the idea is that users of this service improve the yield on their customer protection collateral accounts while maintaining liquidity of funds.
“We believe our expansion into what are typically securities driven collateral markets will provide a fresh view, better liquidity and a greater convenience for the customer,” says Ed Corral, senior vice president and New York business manager of Clearance and Collateral Management for JPMorgan. “Ultimately, we are providing customers with a reduced cost for collateral.”
Rule 15c3-3 under the Securities Exchange Act of 1934 requires broker/dealers to maintain “Special Reserve Bank Accounts for the Exclusive Benefit of Customers” to protect client assets in the event of default. Funds in these accounts have to be invested in U.S. government securities or placed in bank cash deposits. JPMorgan has designed its 15c3-3 Reserve Bank Account Service to satisfy the requirement.
“Complying with these rules has never been more complex, compounding the challenge of growing one’s business,” says Michael K. Clark, executive vice president and head of JPMorgan’s Institutional Trust Services. “The decision to expand the product was simply driven by customer demand in the broker/dealer community.”
JPMorgan’s Clearance & Collateral Management group recently completed a pilot test with clients.