On September 17, 2026, the Staff of the Division of Trading and Markets (the “Division”) of the Securities and Exchange Commission (the “SEC”) issued two no-action letters addressing the net capital and customer protection implications of “zero cash balance” brokerage account models.  The letters were issued to eToro USA Securities Inc. (“eToro”), an introducing broker, and Alpaca Securities LLC (“Alpaca”), a carrying/clearing firm.  Each seeks to offer a “zero cash balance” brokerage account in addition to its traditional brokerage account offerings.

How the “zero cash balance” model works

Under the zero cash balance model described in the letters, brokerage customers choose not to deposit and maintain their funds in their brokerage accounts, but instead in external accounts maintained either by a state-licensed money services business registered with the Financial Crimes Enforcement Network (an “MSB”) or by a bank (each, an “External Cash Account”).  When a customer places a securities buy order, the customer instructs the MSB or bank to transfer funds from the customer’s External Cash Account to the customer’s brokerage account at the carrying firm.  When a customer sells securities, the carrying firm, in accordance with the customer’s standing authorization, promptly transfers the cash proceeds from the customer’s brokerage account to the customer’s External Cash Account.  Customers do not directly fund or otherwise maintain funds in their brokerage accounts.

The two letters address different regulatory aspects of this model, reflecting the different roles of the firms:

The eToro Letter – Net Capital Treatment under SEC Rule 15c3-1

eToro operates as an introducing broker-dealer that seeks to introduce zero cash balance brokerage accounts to its carrying broker-dealer on a fully disclosed basis.  The carrying broker-dealer carries all of eToro’s customer brokerage accounts and is responsible for all books and records pertaining to those accounts as is customary of a clearing broker-dealer.  eToro does not receive, directly or indirectly, hold funds or securities for, or owe funds or securities to, customers, does not carry customer accounts, and does not engage in any of the activities described in paragraphs (a)(2)(i) through (v) of SEC Rule 15c3-1.  The Staff stated that it will not recommend enforcement action against eToro under Section 15(c)(3) of the Securities Exchange Act of 1934 (the “Exchange Act”) or Rule 15c3-1(a) thereunder if eToro operates the zero cash balance model while maintaining a minimum net capital of the greater of $5,000 or the amount required under SEC Rule 15c3-1(a)(1), subject to the conditions detailed in the request letter, as outlined below under Common Principles.

The Alpaca Letter – Treatment of Free Credit Balances under SEC Rule 15c3-3

Alpaca operates as a carrying and clearing broker-dealer for customers, which may be introduced to the firm by introducing brokers.  The firm maintains a minimum net capital of the greater of $250,000 or 2% of aggregate debit items computed in accordance with the reserve formula (Exhibit A to SEC Rule 15c3-3) pursuant to SEC Rule 15c3-1(a)(1)(ii) and operates pursuant to the full provisions of SEC Rule 15c3-3, including paragraph (j)(2) thereof.

SEC Rule 15c3-3(j)(2) generally prohibits a broker-dealer from converting, investing or transferring customer credit balances to another account or institution except as permitted by paragraphs (j)(2)(i) and (j)(2)(ii) of the rule.  Paragraph (j)(2)(i) permits a transfer of free credit balances in a customer’s account only upon a customer’s specific order, authorization or draft, and only in the manner and on the terms and conditions specified in the order, authorization or draft.

The Division stated that it will not recommend enforcement action against Alpaca under Section 15(c)(3) of the Exchange Act or Rule 15c3-3(j)(2) thereunder if Alpaca operates the zero cash balance model in accordance with the conditions described in the firm’s request letter:

  1. Customer Standing Authorization:  The Alpaca brokerage account agreement and/or the brokerage account agreement with the applicable introducing broker (the “Brokerage Customer Agreements”) will include the customer’s specific consent, instruction and standing authorization for Alpaca to remit promptly, but in any event prior to the close of business on the following business day, all free credit balances to the designated External Cash Account on an ongoing basis, until further notice from the customer.
  2. Sale-Order Instruction:  Contemporaneous with each sell order, the customer explicitly agrees, acknowledges and instructs Alpaca to transfer corresponding free credit balance arising from sales proceeds to the customer’s External Cash Account upon settlement consistent with the customer’s standing authorization, as described above.
  3. Transfer of Free Credit Balances:  Free credit balances will be transferred from the customer’s brokerage account to the customer’s External Cash Account only in the manner, and under the terms and conditions, specified in the customer’s standing authorization.
  4. Customer Reserve:  In the event that any free credit balances have not been remitted as of the time that Alpaca’s reserve bank account computation is required to be determined pursuant to SEC Rule 15c3-3(e), Alpaca will include such free credit balances as a credit item in the customer reserve formula pursuant to SEC Rule 15c3-a.
  5. Daily Reconciliation:  Alpaca and the MSB will exchange daily reconciliation reports detailing both funds transferred to the brokerage accounts from External Cash Accounts and free credit balances transferred from brokerage accounts to External Cash Accounts.

Common Principles

The following conditions and disclosures are required under both letters:

  • Each customer, under the applicable Brokerage Customer Agreement(s), must designate an External Cash Account to serve as both the funding source for any transfer of funds to the brokerage account and the destination account for any transfer of funds out of the brokerage account;
  • The applicable Brokerage Customer Agreement(s) must clearly disclose that pursuant to the customer’s standing authorization, free credit balances will be promptly remitted to the External Cash Account;
  • The applicable Brokerage Customer Agreement(s) must clearly disclose that funds transferred to the External Cash Account are not held in the customer’s brokerage account and are therefore not recognized as eligible claims of “customers” under the Securities Investor Protection Act of 1970 (“SIPA”), rendering such funds ineligible for protection under SIPA and the Securities Investor Protection Corporation;
  • Funds held in External Cash Accounts will not be commingled with proprietary funds of the MSB or bank, and the firm will conduct periodic checks to ensure the MSB or bank maintains appropriate licensure and registration; and
  • Important details regarding the zero cash balance model must be prominently disclosed to customers in the applicable Brokerage Customer Agreement(s) and at pertinent points within the firm’s brokerage platform.

Key Takeaways

The letters are notable as they provide a regulatory pathway for fintech (including crypto) platforms to facilitate brokerage models in which customer cash is held outside the traditional broker-dealer custody framework.  Taken together with the Innovation Exemption, issued the same day and granting temporary, conditional exemptive relief for onchain trading of tokenized NMS stock on new blockchain-based venues, these no-action letters suggest a coordinated effort by the Division to address multiple facets of the digital assets infrastructure.