On March 30, 2026, the SEC’s Division of Trading and Markets issued a staff letter and the SEC issued a Commission order that together modify how broker-dealers may use equity securities as collateral under Rule 15c3-3. While the actions address distinct aspects of the rule framework, both reflect the SEC’s overarching willingness to modernize practices while reinforcing the need for robust internal controls, daily oversight, and clear documentation. The relief permits an “equity-for-equity” securities lending structure that can benefit broker-dealers from a customer and Proprietary Accounts of Broker-Dealers (PAB) reserve computation standpoint.
In a letter to ISLA Americas (ISLA) and the Securities Industry and Financial Markets Association (SIFMA), the SEC’s Division of Trading and Markets indicated it would not recommend enforcement action under Rule 15c3-3 where a broker-dealer pledges customer margin equity securities that qualify as eligible equity collateral, i.e., a diversified basket of long equity securities included in the Russell 1000 or S&P 500, including certain unleveraged exchange-traded funds, as collateral for equity securities borrowed to effectuate customer short sales or make delivery on customer fails to deliver. In addition, ISLA and SIFMA requested analogous treatment on how broker-dealers may treat equity-for-equity collateral arrangements within the customer and PAB reserve formula. With the issuance of the letter, the SEC confirmed that a debit may be included for the market value of securities borrowed to effectuate customer short sales or make delivery on customer fails to deliver, where the broker-dealer pledges eligible equity collateral as collateral. If the security later loses its index eligibility, the broker-dealer has five business days to substitute with compliant collateral or return the borrowed securities.
The staff letter indicates how Division staff would not recommend enforcement action for specified customer and PAB reserve-formula treatments, provided the broker-dealer establishes and applies documented daily allocation controls. Practically, the letter outlines how broker-dealers may treat customer and PAB reserve impacts in defined equity-for-equity scenarios, including:
- When customer/PAB equities are pledged as collateral for a stock borrow to cover a customer/PAB short
- Where a broker-dealer loans customer/PAB equities and receives equities as collateral which are used to cover a short related to a customer/PAB
- Where an equity security is received as collateral to a stock loan that will be allocated to a customer/PAB long, and
- Where a security is pledged as collateral for a stock borrow and the pledge allocates to a customer/PAB long
As a condition to rely on the staff position, broker-dealers are expected to maintain robust daily controls around these allocations. Broker-dealers relying on the relief should operationalize daily mark-to-market processes for collateral and borrowed securities, ensure reserve-formula inputs reflect current market values, create written policies and procedures addressing internal controls for equity allocations, and make sure that customer and PAB allocations are properly segregated. The SEC also maintains that broker-dealers should provide internal control documentation related to equity allocations to the agency upon request. Practically, this means broker-dealers will need to refine documentation frameworks and ensure that securities lending, operations, and finance teams are aligned on daily processes.
In a separate issuance, the SEC issued Release No. 34-105108, Order Regarding the Collateral Broker-Dealers May Pledge When Borrowing Customer Securities, which expands the types of collateral broker-dealers may use when borrowing fully paid or excess margin securities from customers. Under the existing framework in Rule 15c3-3(b)(3), borrowers must be collateralized with cash, U.S. Treasury bills or notes, or irrevocable bank letters of credit.
The new order authorizes the use of eligible equity collateral when borrowing fully paid or excess margin customer equities, provided certain conditions are met. The broker-dealer and qualified institutional securities lender (QISL) must mutually agree to reasonable concentration and diversification standards for pledged collateral. In addition, the borrowed securities and the collateral must be marked-to-market daily, and the collateral must fully secure the obligation.
The SEC also clarified who qualifies as a QISL. Under the rule, QISLs are defined as:
- Entities as defined under Rule 144A of the Securities Act of 1933
- Entities that own and invest at least $100 million in unaffiliated issuers’ securities on a discretionary basis, or
- Principal lenders represented by an agent bank that has at least $100 million in outstanding securities loans (not counting loans to broker-dealers through that agent)
Broker-dealers may rely on lender representations, but if a lender is later found to be noncompliant, the broker-dealer has five business days to substitute compliant collateral or return the borrowed securities. Additional conditions apply when using equity collateral, including:
- Broker-dealers must over-collateralize by 1% for securities borrowed in euros, pounds, Swiss francs, Canadian dollars, or yen; and by 5% for other currencies.
- The collateral must be held at a bank or broker-dealer (representations from the lender or agent regarding compliance are acceptable), and
- Both the broker-dealer and the lender must mutually agree to maintain reasonable concentration and diversification standards for the pledged collateral.
Practical Considerations
The SEC’s staff letter and Commission order create meaningful operational and reserve calculation opportunities, but they also raise compliance and control demands. The following practical considerations focus on daily processes and governance changes broker-dealers should prioritize. These items are intended to help institutions translate the relief into compliant, repeatable practices, and ensure readiness for supervisory reviews.
Scenarios
- Broker-dealer pledges customer equities as collateral for a stock borrow that is used to cover a customer/PAB short, deliver on a customer/PAB fail to deliver, or allocates to a customer/PAB. Item 11 securities borrowed debit equals the market value of the equity stock borrow.
- Broker-dealer loans customer equities and receives equities as collateral and the collateral is used to cover a customer/PAB short, deliver on a customer/PAB fail to deliver, or allocates to a customer/PAB account. Item 11 securities borrowed debit equals the market value of the collateral received.
- Broker-dealer receives equity securities as collateral to a stock loan. Item 3 securities loaned credit equals the market value of the stock loan that is allocated to a customer long position.
- Broker-dealer pledges a security as collateral for a stock borrow. Item 3 securities loaned credit equals the market value of the security pledged that is allocated to a customer’s long position.
Requirements
- Develop and build internal controls to perform a separate allocation of the customer equity collateral used to borrow equity securities.
- Create documented controls to ensure allocation captures the collateral and have a process to utilize those controls daily.
- Make sure a process exists to determine the market value of the equities pledged to include credit under Item 3 securities loaned of the customer reserve formula.
- Make available to the staff of the Commission and its designated examining authority (DEA) internal controls and documentation governing the equity for equity allocation.
- Equities pledged must be Russell 1000 or S&P 500 securities.
- Process to substitute other eligible collateral or close out the stock borrow within five days if the securities cease being Russell 1000 or S&P 500 equities.
- The broker-dealer performs daily customer and PAB reserve formulas and marks to market daily all non-cash Item 3 securities loaned credit and Item 11 securities borrowed debit items.
- Broker-dealer has internal controls to perform a customer and PAB equity for equity allocation and uses those controls daily; the controls should be documented and designed to ensure allocations are consistent with the requirements.
- Prepare to make available all documentation to the staff of the Commission and its DEA.
How Forvis Mazars Can Help
Taken together, these issuances reflect a regulatory environment that is increasingly open to modernizing collateral practices while maintaining a strong focus on customer protection. At the same time, broker-dealers should expect heightened scrutiny around documentation, governance, and the accuracy of daily reserve calculations.
Our team at Forvis Mazars can assist you with the analysis, design, and implementation of strategic changes to your reserve computation process under SEC Rule 15c3-3. We possess the regulatory domain knowledge and industry experience that you can trust, combining a focus on Unmatched Client Experience® with the resources of a global firm.
We work closely with financial institution clients to provide a range of services from guidance on applying the debit items charge and documenting test computations, to advice on integrating daily customer and PAB reserve requirements into your operating model. Our professionals serve companies on financial services industry-leading projects, and we look forward to helping your organization achieve its goals.
If you have any questions or need assistance, please reach out to a professional at Forvis Mazars.