Part 1 of 2: Rule 15c3-3, financial responsibility, SIPC, and FDIC

When customers hold securities and cash at a US self-clearing broker-dealer, several safeguards work together. For example, several SEC and FINRA rules govern where certain customer securities must be held, how customer-related cash is reserved, how much liquid capital a broker-dealer must maintain, and what records, reports, and audits are required.

Each safeguard serves a different purpose, which we will cover in this blog. Together, these requirements create the regulatory framework for how a US clearing broker-dealer protects customer assets and operates its business.

Alpaca Securities LLC (dba Alpaca Clearing) is registered with the SEC and is a member of FINRA and SIPC. As a carrying and self-clearing broker-dealer, we maintain customer accounts, clear and settle transactions, keep required books and records, and perform the customer-protection and financial-responsibility processes applicable to our business. These are continuing operational responsibilities that we perform as part of the same regulatory framework that applies to other compliant US carrying and clearing broker-dealers.

This article focuses on securities accounts carried by Alpaca Clearing. Other products, entities, and account types may be governed by different rules, agreements, and protections. Part 2 examines securities lending and short sales.

Rule 15c3-3: Securities and Cash

Rule 15c3-3, commonly called the Customer Protection Rule, establishes the core requirements governing how broker-dealers safeguard, segregate, and maintain control over customer cash and securities. For this article, we’ll focus on two of the most important safeguards:

  1. Possession or control of customers’ fully paid and excess margin securities
  2. A reserve requirement for customer-related cash credits

The first requires us to evidence that the fully paid and excess margin securities shown on our customer records are actually held by Alpaca in possession or control. If our records show that customers fully paid for 100 shares, we must be able to evidence that Alpaca has those 100 shares. The second determines how much customer-related cash must be maintained in a dedicated reserve account for the benefit of customers.

Possession or Control of Securities

A fully paid security is generally one for which the customer has paid in full. If a customer has no debit balance, those shares are treated as fully paid and must be protected under Rule 15c3-3. The broker must be able to evidence that it has the shares reflected on its customer records and must keep those shares protected from use in the firm’s own financing activities.

A margin account works differently because the broker may be lending money to the customer.

If a customer has a debit balance, Rule 15c3-3 allows the firm to use a limited amount of the customer’s securities as collateral for that loan. The amount is generally capped at 140% of the customer’s debit balance. Securities above that amount are considered excess margin securities and receive the same possession-or-control protections as fully paid securities.

For example, if a customer has borrowed $10,000 from the broker, up to $14,000 of securities may generally be used as collateral for that loan. Securities above that amount must remain protected under the rule.

This is the basic concept behind rehypothecation: the broker extends credit to the customer and is permitted to use a limited amount of the customer’s securities as collateral against that credit. We’ll explain securities lending and rehypothecation in more detail in Part 2.

Carrying broker-dealers must promptly obtain and maintain physical possession or control of fully paid and excess margin securities. 

“Possession” can literally mean holding a physical stock certificate in the firm’s custody. Today, however, most securities are held electronically in book-entry form.

“Control” generally means the broker-dealer can demonstrate that the securities are held through an approved custody arrangement, such as at a regulated securities depository like The Depository Trust Company (DTC).

Electronic book-entry custody is the standard model for modern securities markets because it allows securities to be held, transferred, and settled far more efficiently than physical certificates.

Alpaca is a self-clearing participant in DTC, a subsidiary of Depository Trust & Clearing Corporation (DTCC). DTC records eligible securities at the participant level, while our stock record and customer account records allocate those positions among customers and other accounts.

We perform the required daily possession-or-control determination. This process identifies the securities we must possess or control, where they are held, how those locations are classified under the rule, and whether any deficit requires action under Rule 15c3-3(d). In practice, this means comparing external records like a position statement from the DTC showing what Alpaca holds with our internal stock record ledger showing which customer accounts are entitled to those securities.

The Customer Reserve Computation

Rule 15c3-3 also requires carrying broker-dealers to calculate their net customer cash obligation using the Customer Reserve Formula:

Customer credit items − permitted customer debit items = required reserve deposit. 

If there are more credits, the firm must deposit additional funds into a designated Special Reserve Bank Account for the Exclusive Benefit of Customers. Assets maintained in the reserve account are restricted for the benefit of customers and may be withdrawn only as permitted under the rule. 

Credit items generally represent money the broker-dealer owes to customers. Debit items represent certain customer-related amounts the rule allows the broker-dealer to subtract from that total.

The reserve is maintained at the broker-dealer level rather than through a separate bank account for each customer. Individual customer balances remain recorded in the broker-dealer’s books and records.

The required reserve amount changes as customers trade, deposit or withdraw cash, borrow on margin, and as transactions settle. Alpaca performs this calculation daily and makes any required deposit within the time required by the rule.

This process determines how much customer-related cash must be maintained in an account reserved exclusively for the benefit of customers.

Net Capital and Financial Monitoring

Rule 15c3-3 addresses specified customer securities and customer-related cash. SEC Rule 15c3-1 separately addresses the broker-dealer’s own liquid capital.

The net-capital calculation starts with the broker-dealer’s net worth and then applies regulatory deductions. Assets that are harder to sell, less liquid, or more exposed to market movements receive less credit toward regulatory capital.

We monitor our capital position against the minimum and notification thresholds applicable to our business. We also maintain the financial monitoring and reporting processes associated with FINRA Rules 4120 and 4521. Under specified financial conditions, those rules may result in regulatory notifications, restrictions, or a curtailment of business. Our Statement of Financial Condition, including our reported net capital, is publicly available on our website here.  

Books, Reconciliations, and Independent Audit

We create and retain the records required by SEC Rules 17a-3 and 17a-4, including records of customer positions, cash balances, transactions, securities movements, loans and borrows, settlement transactions, and regulatory computations.

These records allow us to reconcile information from depositories, clearing agencies, custodians, and banks with our stock record, general ledger, and customer account records.

We also perform securities counts and verification under Rule 17a-13 and submit required financial and operational reports under Rule 17a-5. Our annual reporting includes a compliance report addressing specified financial-responsibility rules and internal control over compliance. An independent public accountant examines the relevant assertions under SEC and PCAOB requirements.

We maintain processes for notifying regulators when specified capital, reserve, books-and-records, or possession-or-control conditions occur. Our operations and records are also subject to FINRA examination and requests for records or independent asset verification.

SIPC

Securities Investor Protection Corporation (“SIPC”) is a nonprofit corporation created by Congress that administers the customer-protection process established by The Securities Investor Protection Act (“SIPA”), a U.S. federal law passed in 1970. It is separate from the SEC, FINRA, and FDIC.

If a SIPC-member broker-dealer enters a qualifying liquidation or direct-payment procedure, a trustee identifies and gathers customer property, calculates customer claims as “net equity” under SIPA, and distributes the customer-property pool based on allowed claims. SIPC may advance funds to help return eligible cash and securities, subject to statutory limits.

SIPC protection is limited to $500,000 per customer, including a $250,000 limit for a cash claim. Accounts held by the same customer in the same capacity are generally combined for purposes of these limits. Accounts held in legally recognized separate capacities may be treated separately. The determination depends on SIPA and SIPC rules, not simply on the number of accounts a customer holds.

SIPC may become involved when a member broker-dealer fails and customer cash or securities are missing. It does not protect against investment performance, unsuitable advice, or assets outside SIPA’s scope.

Alpaca’s Excess SIPC Coverage

We expanded our pre-existing SIPC coverage through Lloyd’s of London earlier this year. This Excess SIPC Coverage becomes available to eligible customers after the applicable SIPC limits are exhausted. 

As of September 8, 2026, the policy provides:

  • Up to $75 million in securities per customer
  • Up to $75 million in cash per customer
  • A $250 million aggregate limit shared across all Alpaca Clearing customer accounts

The aggregate limit is important. The $75 million figures are per-customer maximums within a total policy limit of $250 million across all covered customer claims. They should not be interpreted as $75 million separately guaranteed to every customer if aggregate covered claims exceed $250 million.

Like SIPC protection, Excess SIPC Coverage does not cover a decline in the market value of securities. It also does not replace the custody, reserve, capital, recordkeeping, or reconciliation requirements described above.

Brokerage Cash and Bank-Sweep Cash

The framework that applies to cash depends on where it is held.

Cash in a securities brokerage account is subject to broker-dealer customer-protection requirements described in 15c3-3 and may qualify for SIPC protection in a covered proceeding.

Cash transferred to a participating bank through an FDIC sweep program may qualify for pass-through FDIC insurance under the program terms and applicable limits. It is not SIPC-protected while held at the program bank.

FDIC limits generally apply per depositor, per insured bank, and per ownership category. Other deposits held by the customer in the same ownership category at the same bank may affect the available coverage. The amount of FDIC insurance available depends on the customer’s total deposits at that bank and how those accounts are legally owned.

For more about our FDIC program, see our disclosure library.

Summary

Customer asset protection at Alpaca is a layered framework. Rule 15c3-3 governs the treatment of specified customer securities and customer-related cash. Rule 15c3-1 addresses the broker-dealer’s liquid capital. Recordkeeping, reconciliation, reporting, audits, and regulatory examinations support those processes. SIPA, Alpaca’s Excess SIPC Coverage, and FDIC insurance provide separate backstops, subject to their respective terms, limits, and eligibility requirements.

None of these protections covers ordinary market loss, and no single component replaces the others.

Part 2 examines what changes when a customer elects to lend securities and how Regulation SHO applies to short-sale marking, locates, settlement, and close-outs.

References

SIPC and Excess SIPC Protection Alpaca Securities LLC (dba Alpaca Clearing) is a member of the Securities Investor Protection Corporation (SIPC), which protects securities customers of its members up to $500,000 (including $250,000 for claims for cash). An explanatory brochure is available upon request via telephone at (202) 371-8300 or at www.sipc.org.

Alpaca Clearing has expanded its pre-existing SIPC coverage through Lloyd's of London to supplement SIPC protection known as Excess SIPC Coverage. The additional insurance becomes available to customers in the event that SIPC limits are exhausted. The excess coverage provides protection for any Alpaca Clearing customer up to $75 million in securities and $75 million in cash, and is covered at an aggregate limit of $250 million across all Alpaca Clearing customer accounts. Similar to SIPC protection, this additional insurance does not protect against a loss in the market value of securities.

Alpaca Securities customers that enroll in the FDIC Bank Sweep are potentially eligible for enhanced FDIC pass-through insurance coverage. Neither Alpaca nor Alpaca Securities are FDIC-insured. FDIC pass-through insurance coverage is subject to various conditions. The Program’s enhanced FDIC insurance coverage is limited to the aggregate number of participating program banks, multiplied by the FDIC insurance limit (i.e., $250,000). The total number of program banks is subject to change and Alpaca Securities may not utilize all program banks at all times which will affect the Program’s enhanced FDIC insurance coverage amount. In addition, if a customer has a direct banking relationship with a program bank this may affect the amount of funds that are potentially eligible for FDIC-pass through insurance coverage. There is no guarantee that customer funds will be held in such a manner as to maximize possible FDIC pass-through insurance coverage. Please see alpaca.markets/disclosures for further information and important disclosures.

This material is for general informational purposes only and does not constitute legal, tax, investment, financial, or compliance advice. It describes selected requirements at a high level and is not a complete statement of applicable law. Rules, interpretations, account terms, programs, and insurance coverage may change. Eligibility for a particular protection depends on the facts and governing terms. All investments involve risk, including possible loss of principal.

Securities brokerage services are provided by Alpaca Securities LLC (dba "Alpaca Clearing"), member FINRA/SIPC, a wholly-owned subsidiary of AlpacaDB, Inc. Technology and services are offered by AlpacaDB, Inc.