
[Federal Register Volume 76, Number 10 (Friday, January 14, 2011)]
[Notices]
[Page 2728]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-711]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. SIPA-170; File No. SIPC-2010-01]


Securities Investor Protection Corporation; Order Approving a 
Proposed Bylaw Change Relating to SIPC Fund Assessments on SIPC Members

January 10, 2011.
    On October 8, 2010, the Securities Investor Protection Corporation 
(``SIPC'') filed with the Securities and Exchange Commission 
(``Commission'') a proposed bylaw change pursuant to Section 3(e)(1) of 
the Securities Investor Protection Act of 1970 (``SIPA''), 15 U.S.C. 
78ccc(e)(1). Notice of the proposed bylaw change was published in the 
Federal Register on December 6, 2010.\1\ The Commission received no 
comment letters on the proposed bylaw change. This order approves the 
proposed bylaw change.
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    \1\ See Release No. SIPA-169 (November 30, 2010), 75 FR 75711 
(December 6, 2010).
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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 bylaws. When the SIPC Fund is at its 
targeted level, SIPC collects a minimum assessment as provided in SIPA. 
The current target level for the SIPC Fund is $2.5 billion.
    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.\2\ 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 a member's gross revenues, the SIPC Assessments 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, rather 
than $150. Second, SIPC has proposed deleting Section 1(a)(3) of 
Article 6, which states 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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    \2\ 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.\3\ 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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    \3\ 15 U.S.C. 78ddd(c)(2) and 78lll(9).
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II. Commission Findings

    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. Once the Commission finds that the 
proposed bylaw change involves a matter of such significant public 
interest that public comment should be obtained, 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. Prior to approving 
a proposed bylaw change that has been noticed for public comment the 
Commission must make a finding that the change is in the public 
interest and is consistent with the purposes of SIPA.\4\
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    \4\ 15 U.S.C. 78ccc(e)(2)(D).
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    The Commission finds, pursuant to Section 3(e)(2)(D) of SIPA, that 
the proposed bylaw change is in the public interest and consistent with 
SIPA. First, the proposed bylaw change is a necessary consequence of 
Dodd-Frank. Second, utilizing net operating revenues instead of gross 
revenues is consistent with industry practice, SIPA, and the SIPC 
bylaws.

III. Conclusion

    It is therefore ordered, pursuant to Section 3(e)(2)(B) of SIPA, 
that the proposed bylaw changes (File No. SIPC-2010-01) are approved.

    By the Commission.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-711 Filed 1-13-11; 8:45 am]
BILLING CODE 8011-01-P


