Recently, the SEC announced that it was reconsidering a proposal first explored in 2007 that would amend net capital requirements, and update the financial responsibility rules for member firms.  The SEC has reopened the comment period for this 2007 proposal.  But is it worth it?  In light of what happened commencing in 2008, can a 2007 proposal really have any meaning.  That is the question that the comment period must answer.

The proposal would require firms to carry reserve funds where the firm holds proprietary accounts of another firm in order to cover claims made against those accounts.  The proposal would also prohibit firms from counting cash deposits at affiliated banks and a portion of funds at non-affiliated banks toward their reserve.

This proposal has been criticized due to the lapse of time and corresponding change in circumstances.  Among other issues cited with this proposal is that it would have a more negative than positive effect and does not adequately take current circumstances into account.  As such, the proposal does not sufficiently weigh the cost-benefit of implementation.  Further, the limitation on what can be counted toward the reserve has come under fire because it could increase costs and operational burden on some firms.

Although bolstering the financial viability of broker-dealers is the laudable goal of this proposal, the real issue is whether this dated proposal is the right course toward further stability.  Rather than trying to fit a square peg in a round hole, should the SEC take a fresh look at this issue so that current circumstances and the cost-benefit are adequately assessed.  For what is at stake, it seems to me the logical answer is yes.  The SEC waited five years to address this proposal, what is a little more time to make sure it is done right.