
[Federal Register Volume 75, Number 233 (Monday, December 6, 2010)]
[Notices]
[Pages 75711-75713]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-30434]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. SIPA-169; File No. SIPC-2010-01]


Securities Investor Protection Corporation; Notice of Filing of a 
Proposed Bylaw Change Relating to SIPC Fund Assessments on SIPC Members

November 30, 2010.
    Pursuant to Section 3(e)(1) of the Securities Investor Protection 
Act of 1970 (``SIPA''), 15 U.S.C. 78ccc(e)(1), notice is hereby given 
that on October 8, 2010, the Securities Investor Protection Corporation 
(``SIPC'') filed with the Securities and Exchange Commission 
(``Commission'') a proposed bylaw change. The Commission is publishing 
this notice to solicit comments on the proposed bylaw change from 
interested persons.

I. Description of Proposed Bylaw Change

    Section 4(c)(2) of SIPA requires SIPC to impose assessments upon 
its member broker-dealers deemed necessary and appropriate to establish 
and maintain a broker-dealer liquidation fund administered by SIPC (the 
``SIPC Fund'') and to repay any borrowings by SIPC used to liquidate a 
broker-dealer. Pursuant to this authority, SIPC collects an annual 
assessment from its members. The amount of the annual assessment is 
prescribed by SIPA and the SIPC

[[Page 75712]]

bylaws. For example, if SIPC has an outstanding loan from the 
Commission, SIPA provides that SIPC assess its member broker-dealers 
\1/2\ of 1% of the gross revenues from their securities business.\1\ In 
addition, if the SIPC Fund aggregates or is likely to aggregate less 
than $2.5 billion for six months or more, SIPC must raise each member's 
assessment to \1/2\ of 1% of net operating revenues.\2\ When the SIPC 
Fund is at its targeted level, SIPC collects a minimum assessment as 
provided for in SIPA. The current target level for the SIPC Fund is 
$2.5 billion.
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    \1\ 15 U.S.C. 78ddd(d)(1)(A)(ii).
    \2\ SIPC Bylaws, Article 6, Section (a)(1)(C)(i).
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    The Dodd-Frank Wall Street Reform and Consumer Protection Act of 
2010 (``Dodd-Frank Act'') amended SIPA to change the minimum assessment 
from an amount not to exceed $150 to an amount not to exceed 0.02 
percent of the gross revenues from the securities business of the SIPC 
member.\3\ Under Article 6 of the SIPC bylaws, SIPC must assess its 
members a minimum amount ($150) unless certain conditions apply. 
Because in some cases an assessment of $150 would exceed 0.02 percent 
of the gross revenues, the SIPC Assessment bylaw must be amended to be 
consistent with the Dodd-Frank Act. First, SIPC has proposed to amend 
Article 6, Section 1(a)(1)(B) of the SIPC bylaws by replacing ``$150'' 
with the term ``0.02 percent of the net operating revenues from the 
securities business.'' This amendment clarifies that the minimum 
assessment for members, once the SIPC Fund reaches its target, is 0.02 
percent of a member's net operating revenues, not $150. Second, SIPC 
has proposed deleting Section 1(a)(3) of Article 6, which stated that 
$150 was the minimum assessment a SIPC member would be required to pay 
in any calendar year. These amendments were approved by SIPC's Board of 
Directors on September 16, 2010.
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    \3\ The Dodd-Frank Act, Section 929V.
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    As indicated above, SIPC's bylaw changes refer to ``net operating 
revenues'' instead of ``gross revenues.'' Since 1991, when assessing on 
a percentage basis (i.e., not a flat $150 minimum assessment), SIPC has 
based the assessment amount on a percentage of net operating revenues, 
not gross revenues, from the securities business. In 1991, a SIPC Task 
Force study found that securities firms no longer structured their 
business on a gross revenue basis but instead used a net operating 
revenue basis, which excludes interest expense and dividend expense in 
accounting for revenue. SIPC bases its assessment on the net revenues 
associated with that business, which it believes is consistent with 
SIPA. Basing the assessment on net operating revenues as opposed to 
gross revenues will decrease the amount of the assessment in most 
situations. However, under SIPA, SIPC may adjust the basis for 
collecting assessments and the amount of assessments as long as the 
assessments are within the parameters prescribed in SIPA.\4\ Using a 
minimum assessment of 0.02 percent of net operating revenues would not 
cause the amount of the assessment to exceed the maximum amount 
permitted for the minimum assessment under Section 4(d)(1)(C) of SIPA, 
as amended by the Dodd-Frank Act.
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    \4\ 15 U.S.C. 78ddd(c)(2) and 78lll(9).
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    In 1991, when SIPC changed its assessment methodology from gross 
revenues to net operating revenues, the Commission published notice of 
the proposed change and requested comment.\5\ The comments received 
were in support of the proposed change, which made the assessments more 
consistent with how industry revenues are calculated.\6\
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    \5\ Securities Investor Protection Corporation; Notice of 
Proposed Bylaw Change Relating to SIPC Fund Assessments on SIPC 
Members, Rel. No. SIPA-156, 56 FR 51952 (Oct. 16, 1991).
    \6\ Securities Investor Protection Corporation; Order Approving 
Proposed Bylaw Change Relating to SIPC Fund Assessments on SIPC 
Members, Rel. No. SIPA-157, 56 FR 60145 (Nov. 27, 1991).
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II. Need for Public Comment

    Section 3(e)(1) of SIPA provides that SIPC must file with the 
Commission a copy of proposed bylaw changes. That section further 
provides that bylaw changes shall take effect 30 days after filing, 
unless the Commission either; (i) disapproves the change as contrary to 
the public interest or the purposes of SIPA, or (ii) finds that the 
change involves a matter of such significant public interest that 
public comment should be obtained. Thus, under Section 3(e)(1) of SIPA, 
a proposed bylaw change does not have to be noticed for public comment. 
However, under Section 3(e)(1)(B) of SIPA, the Commission can find that 
``such proposed change involves a matter of such significant public 
interest that public comment should be obtained,'' in which case, the 
Commission may, after notifying SIPC in writing of such finding, 
require that the proposed bylaw change be considered by the same 
procedures as a proposed rule change including, among other things, 
publication in the Federal Register and opportunity for public comment.
    The SIPC Fund, which is built from assessments on its members and 
the interest earned on the fund, is used for the protection of 
customers of members liquidated under SIPA to maintain investor 
confidence in the securities markets. In light of this fact and that 
the bylaw change provides for a new minimum assessment methodology, the 
Commission finds, pursuant to Section 3(e)(1)(B) of SIPA, that the 
proposed bylaw change involves a matter of such significant public 
interest that public comment should be obtained and that the procedures 
applicable to proposed SIPC rule changes in Section 3(e)(2) of SIPA 
should be followed. As required by Section 3(e)(1)(B) of SIPA, the 
Commission has notified SIPC of this finding in writing.

III. Date of Effectiveness of the Proposed Bylaw Change and Timing for 
Commission Action

    Within 35 days of the date of publication of this notice in the 
Federal Register, or within such longer period: (i) As the Commission 
may designate up to 90 days of such date if it finds such longer period 
to be appropriate and publishes its reasons for so finding or (ii) as 
to which SIPC consents, the Commission will: (A) By order approve such 
proposed bylaw change, or (B) Institute proceedings to determine 
whether the proposed bylaw change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/other.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SIPC-2010-01 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, Station Place, 100 F 
Street, NE., Washington, DC 20549-1090.

All submissions should refer to File Number SIPC-2010-01. This file 
number should be included on the subject line if e-mail is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/other.shtml). Copies of the submission, all subsequent

[[Page 75713]]

amendments, all written statements with respect to the proposed rule 
change that are filed with the Commission, and all written 
communications relating to the proposed rule change between the 
Commission and any person, other than those that may be withheld from 
the public in accordance with the provisions of 5 U.S.C. 552, will be 
available for Web site viewing and printing in the Commission's Public 
Reference Room, 100 F Street, NE., Washington, DC 20549, on official 
business days between the hours of 10 a.m. and 3 p.m. All comments 
received will be posted without change; the Commission does not edit 
personal identifying information from submissions. You should submit 
only information that you wish to make publicly available. All 
submissions should refer to File Number SIPC-2010-01 and should be 
submitted on or before December 27, 2010.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(f)(2)(i).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-30434 Filed 12-3-10; 8:45 am]
BILLING CODE 8011-01-P


