The NYSE proposes to reduce the net liquid asset requirements for Designated Market Maker (DMM) units. As proposed, NYSE Rule 103.20 would be amended, so that DMMs no longer would be required to maintain $250 million in net liquid assets - i.e., assets readily convertible to cash - plus a “market risk add-on” equal to 3 times securities position haircuts calculated under the net capital rules of the SEC.

The requirements of Rule 103.20 are in addition to the net capital requirements applicable to all broker-dealers as prescribed in Rule 15c3-1,3 under the Securities Exchange Act of 1934.

The purpose of the Rule 103.20 requirement is to assure that DMM units maintain sufficient liquidity to carry out their obligations to maintain an orderly market in their assigned securities in times of market stress.  The structure of the rule was established in July 2006 when the total requirement applicable to specialists was set at $1 billion.  It was reduced to $240mn in February 2008.  

In view of the significant changes since 2008 in the NYSE’s market structure, as well as market-wide regulatory and trading developments and trends, the Exchange now proposes to reduce that number further - to $125 million and that the market risk add-on be reduced from 3 times haircuts to 1 time haircuts.  In addition, the NYSE would eliminate the value at risk (“VaR”) market risk add-on alternative, which currently is not being used by any DMM firms.  

For additional information, go to:   [NYSE Rule Filing 11-25, 6/16/11]