4.2. Customer Protection Rule

The SEC adopted Rule 15c3-3, known as the customer protection rule, in 1972 as a reaction to several broker-dealer firms liquidating and leaving their customers high and dry. Prior to that time, broker-dealers had been in the habit of pledging customer securities as collateral for bank loans, and customer credit balances had been used to finance broker-dealers’ businesses. Between 1968 and 1970, more than a dozen broker-dealer liquidations resulted in customer losses i