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News and Press Releases |
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HEADLINE:
US SEC Clears New Net-Capital Rules For Brokerages
By: Kevin Drawbaugh
Reuters. April 28, 2004
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EXCERPT: U.S. market regulators on Wednesday approved new rules that would let some major Wall Street brokerages reduce the amount of money they set aside as net capital, in some cases by as much as 30 percent. In a move in line with bank regulatory changes in Europe, the U.S. Securities and Exchange Commission voted unanimously in an open meeting to approve two optional sets of rules. Under one of them, five big U.S. brokerages are expected to apply soon to be designated as "consolidated supervised entities," or CSEs. Each application for CSE status will have to be reviewed by the SEC, likely several months from now. Goldman Sachs , Morgan Stanley, Merrill Lynch, Lehman Brothers and Bear Stearns have expressed keen interest in CSE status, SEC Market Regulation Director Annette Nazareth told reporters after the meeting. "They are all very well-capitalized firms," Nazareth said. In line with new capital adequacy standards coming into force soon under Europe's Basel accords, brokerages granted CSE status would be able to use in-house, risk-measuring computer models to figure how much net capital they need to set aside. Under Basel standards, some institutions could soon be cutting their net capital by as much as 50 percent. But the SEC's new CSE rule added a $5-billion floor to the Basel model, reducing the likely level of reductions to 20 to 30 percent. The SEC approved a second set of net-capital rules, also voluntary, that would designate an institution as a "supervised investment bank holding company." But Nazareth said there has been little industry interest expressed in it. SEC Commissioner Paul Atkins said monitoring the sophisticated models used by the brokerages under the CSE rules -- and stepping in where net capital falls too low -- "is going to present a real management challenge" for the SEC. Since the new CSE rules will apply to the largest brokerages without bank affiliates, SEC Commissioner Harvey Goldschmid said, "If anything goes wrong, it's going to be an awfully big mess."
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