The SEC Division of Trading and Markets staff allowed two broker-dealers to operate accounts where customer cash sits at a bank or licensed money transmitter instead of in the brokerage account, specifying required capital levels and movement rules for client funds.
eToro USA Securities may operate an introducing-broker model with minimum net capital of $5,000 when client funds are held externally.
Alpaca Securities may carry and clear accounts where customer cash remains at an external bank or money transmitter, keeping minimum net capital of $250,000 or 2% of aggregate debit items, whichever is greater.
Securities and Alpaca Securities to operate brokerage accounts where customer cash is kept outside the brokerage. Instead of holding customer money in the broker-dealer's accounts, funds would remain at a bank or a state-licensed money services business registered with FinCEN.
Both letters set the mechanics for how money moves and the capital each firm must carry. For eToro, which introduces customer accounts to a clearing firm, the staff permitted a minimum net capital of $5,000 under the model described in its request. Alpaca, which clears and carries customer accounts itself, must maintain at least $250,000 or 2% of aggregate debit items, whichever is larger.
Customer agreements must state that funds in the external account are not held in the brokerage account. Because those funds are outside the brokerage, they are not protected by the Securities Investor Protection Corporation (SIPC). Money transmitters may not commingle customer funds with their own operating money. Both broker-dealers must periodically verify that the bank or money transmitter retains the necessary licenses.
Scope and limits of the staff position
The letters are staff no-action positions based on the specific facts presented. The staff took no view on compliance with other federal, state, or foreign laws, or on rules of self-regulatory organizations. The staff also said the position could be modified or revoked. Raymond Lombardo, acting associate director in the SEC's Division of Trading and Markets, signed both letters and noted the relief was "based strictly on the facts and circumstances stated in your Letter."
The relief addresses the net capital rule for eToro and customer-protection rule limits on moving credit balances for Alpaca, but it does not create a permanent Commission rule. eToro's letter referenced an unnamed carrying firm while public filings name Apex Clearing as its clearing broker. Neither firm has announced public launch dates for the external-account model. The staff letters do not resolve compliance with other regulatory regimes outside the specific SEC staff view.
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