IIROC proposes two-test approach to free credit cash usage

December 19, 2014

IIROC yesterday released proposed amendments to its Dealer Member Rules intended to ensure the safeguarding of, and timely client access to, client assets.

Specifically, the proposals would introduce a "two-test" approach to free credit cash usage. Under the proposal, dealers would first calculate their free credit limit under a general segregation test of 12 times their early warning reserve. Where a dealer was not within this limit, a second test would limit the dealer's use of client free credit cash to finance margin loans to 20 times the dealer's early warning reserve, while a dealer's use of client free credit cash for all other purposes would be limited to 12 times the remaining portion of the early warning reserve that is not used to support its margin lending activities.

The proposals would also seek to prevent undue concentration of the investment of client free credit cash balances and dealer capital in the securities of a single issuer.

Comments on the proposals are being accepted by IIROC until April 17, 2015. For more information, see IIROC Notice 14-0298.

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