Registered: Sep 2011
12-30-11 01:30 AM
Quote from freedinner:
Surprised this is not making any bigger headlines:
"The trustee liquidating the Lehman brokerage said he identified about a $5 billion shortfall in customer reserve accounts"
"Lehman’s past “compliance failures” -- including a failure to set aside enough securities for customers, miscoding of accounts and underreported credits -- caused the deficiency, Giddens has said"
Stealing customer money seems to be more commonplace at Wall St brokerages than we are led to believe.
If nothing else Rule 15c3-3, the weekly reserve computation, should be revised.
From a Deloitte & Touche report on the failure of MJK in '01 and the use of a weekly vs. a more frequent reserve reporting requirement:
Deloitte & Touche note on page 24:
"As thirty years have passed and technology continues to improve, it is reasonable to ask whether securities firms can now compute the Reserve Formula daily, or more frequently than once per week."
-And later in the report-
"Perhaps the most direct question raised by the MJK fact scenario is whether the SEC should amend Rule 15c3-3 to require more frequent, or even daily computations of the Reserve Formula. With respect to the weekly Reserve Formula computation, Rule 15c3-3 under one of the original proposals in May of 1972 would have required broker-dealers to compute the Reserve Formula daily.15 In response to industry comments, the proposal was modified and reproposed to the current weekly requirement because as the Commission stated:
“It was represented that, although cash and cash related items could be computed on a daily basis, the nature of broker-dealer accounting, clearance and settlement procedures is such that customer transactions could not be individually traced and separated, so that the daily figures would necessarily reflect combined figures for the firm and the customer. Moreover, numerous smaller brokerdealers felt that the cost of computing such figures daily, including the manual reviewing of customer accounts, would be out of proportion with the additional protection intended for customers, and that the costs in some cases might even be prohibitive. It was pointed out that, as to those firms which use outside computer service facilities, they would find it virtually impossible to comply with the daily requirement, because such service facilities could not reasonably generate the required figures on a daily basis for the multitude of brokers which they serve.”16