
[Federal Register Volume 81, Number 118 (Monday, June 20, 2016)]
[Notices]
[Pages 39986-39990]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-14499]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. SIPA-177; File No. SIPC-2016-01]


Securities Investor Protection Corporation; Notice of Filing of 
Proposed Bylaw Amendments Relating to Assessment of SIPC Members

June 15, 2016.
    Pursuant to section 3(e)(1) of the Securities Investor Protection 
Act of 1970 (``SIPA''),\1\ on May 2, 2016 the Securities Investor 
Protection Corporation (``SIPC'') filed with the Securities and 
Exchange Commission (``Commission'') proposed bylaw amendments relating 
to assessments on SIPC member broker-dealers. On May 27, 2016, SIPC 
consented to a 60-day extension of time before the proposed bylaw 
amendments take effect pursuant to section 3(e)(1) of SIPA.\2\ Pursuant 
to section 3(e)(1)(B) of SIPA, the Commission finds that this proposed 
bylaw change involves a matter of such significant public interest that 
public comment should be obtained.\3\ Therefore, pursuant to section 
3(e)(2)(A) of SIPA,\4\ the Commission is publishing this notice to 
solicit comments on the proposed bylaw change from interested persons.
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    \1\ 15 U.S.C. 78ccc(e)(1).
    \2\ 15 U.S.C. 78ccc(e)(1).
    \3\ 15 U.S.C. 78ccc(e)(1)(B).
    \4\ 15 U.S.C. 78ccc(e)(2)(A).
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    In its filing with the Commission, SIPC included statements 
concerning the purpose of and statutory basis for the proposed bylaw 
amendments as described below, which description has been substantially 
prepared by SIPC.

I. SIPC's Statement of the Purpose of, and Statutory Basis for, 
Proposed SIPC Bylaw Amendments Relating to Assessment of SIPC Members

Overview

    Pursuant to Section 3(e)(1) of SIPA, SIPC submits this statement of 
the purpose of, and statutory basis for, proposed amendments to the 
SIPC Assessments Bylaw.\5\ Among other things, the Assessments Bylaw, 
at Article 6 of the SIPC Bylaws (``Article

[[Page 39987]]

6''), currently provides for an assessment rate of \1/4\ of one percent 
of each member's net operating revenues from the securities business 
until the SIPC Fund reaches $2.5 billion and SIPC determines that the 
Fund will remain at or above $2.5 billion for at least six months. Once 
that determination is made, the assessment rate falls to a ``minimum 
assessment'' of 0.02 percent of the member's net operating revenues 
from the securities business.
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    \5\ 15 U.S.C. 78ccc(e)(1).
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    Notwithstanding the foregoing, Article 6 also provides that the 
assessment rate is \1/4\ of one percent of annual net operating 
revenues if it is reasonably likely that the balance of the Fund will 
fall below $2.5 billion and remain at less than $2.5 billion for six 
months or more. Under the Bylaws, then, it is possible for the rate to 
change, in relatively short order, from \1/4\ of one percent to a 
minimum assessment, and back to \1/4\ of one percent.
    SIPC continues to examine whether the Fund ``target balance'' of 
$2.5 billion is adequate for SIPC to carry out its mission of customer 
protection. Whether or not $2.5 billion is sufficient, in furtherance 
of its mission, SIPC wishes to ensure that at a minimum and to the 
extent possible, the Fund does not fall below $2.5 billion. 
Accordingly, in setting the assessment rate, SIPC deems it prudent to 
consider not only the size of the Fund over a six-month period, but 
SIPC's actual expenditures and its projected expenditures from the Fund 
over a longer term. In addition, the size of the Fund is more likely to 
stay at or above the target balance if there is a more gradual 
progression in rates, before the minimum assessment rate is imposed. 
Finally, such measures would make less likely sudden changes in the 
assessment rate while giving SIPC members some relief in the amount of 
the assessment that they owe.
    With these considerations in mind, SIPC proposes to modify the 
Assessments Bylaw in two respects: One, to impose an intermediary 
assessment rate that would apply when the balance of the SIPC Fund is 
expected to be $2.5 billion for at least six months but SIPC's 
unrestricted net assets, as reflected in its most recent audited 
Statement of Financial Position, are less than $2.5 billion; and two, 
to amend the date on which any change in assessments becomes effective.

Statement of Purpose and Statutory Basis

Background
    Section 4(a)(1) of SIPA authorizes SIPC to establish a ``SIPC 
Fund'' (``the SIPC Fund'' or ``Fund'') from which all expenditures by 
SIPC are to be made.\6\ Examples of SIPC expenditures include advances 
to trustees to satisfy customer claims, and to pay administrative 
expenses in SIPA proceedings where the general estate is insufficient. 
The SIPC Fund also supports the day-to-day operations of SIPC.
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    \6\ 15 U.S.C. 78ddd(a)(1).
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    All SIPC members pay an assessment into the SIPC Fund.\7\ After 
consultation by SIPC with self-regulatory organizations, the assessment 
is in the amount that SIPC deems ``necessary and appropriate,'' to 
establish and maintain the SIPC Fund and to repay any borrowings by 
SIPC. Currently, the rate stands at \1/4\ of one percent per year of 
SIPC members' net operating revenues derived from the securities 
business.\8\ The rate is to remain at \1/4\ of one percent until the 
balance of the SIPC Fund, as defined in section 4(a)(2) of SIPA,\9\ 
excluding SIPC confirmed lines of credit, reaches a target balance of 
$2.5 billion, and SIPC determines that the Fund will remain at $2.5 
billion for at least six months.\10\ If that determination is made, the 
rate falls to a ``minimum assessment'' which is 0.02 percent of each 
member's annual net operating revenues from the securities 
business.\11\
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    \7\ 15 U.S.C. 78ddd(c)(2).
    \8\ Article 6, Sec.  1(a)(1)(A).
    \9\ 15 U.S.C. 78ddd(a)(2)
    \10\ Article 6, Sec.  1(a)(1)(B)
    \11\ Id.
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    Article 6, however, also provides that if SIPC determines that the 
SIPC Fund is, or is reasonably likely to be, less than $2.5 billion and 
will likely remain at less than $2.5 billion for six months or more, 
exclusive of confirmed lines of credit, then the assessment rate is to 
be \1/4\ of one percent of the member's annual net operating 
revenue.\12\
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    \12\ Article 6, Sec.  1(a)(1)(C)(i). If the amount is less than 
$150 million, the assessment is in an amount to be determined by 
SIPC, but cannot be less than \1/4\ of one percent of the member's 
annual gross revenues from the securities business. Article 6, Sec.  
1(a)(1)(C)(ii). If the Fund is less than $100 million, then the 
amount of the assessment also is determined by SIPC but, each year, 
it cannot be less than \1/2\ of one percent of each member's annual 
gross revenues from the securities business. Article 6, Sec.  
1(a)(1)(C)(iii); 15 U.S.C. 78ddd(d)(1)(A) and (B). In no event may 
the assessment rate be more than \1/2\ of one percent annually of 
the member's gross revenues from the securities business, unless 
SIPC determines that a higher rate, but not one that is higher than 
one (1) percent of gross revenues, will not have a material adverse 
effect on the financial condition of SIPC members or their 
customers. Article 6, Sec.  1(a)(1)(C)(iv); 15 U.S.C. 
78ddd(c)(3)(B).
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The Proposed Amendments

A. Imposition of an Intermediary Assessment Rate
    Where large SIPA liquidation proceedings are pending that require 
sizeable advances by SIPC, the SIPC Fund may be at $2.5 billion for six 
months, but then fall significantly below that amount as additional 
advances are made. Under Article 6, Section 1(a)(1)(A), once the Fund 
reaches $2.5 billion and is projected to remain at or above that amount 
for six months or more, SIPC could change the assessment rate from \1/
4\ of one percent, to 0.02 percent, of net operating revenues from the 
securities business. On the other hand, because projected expenditures 
in pending proceedings could reasonably cause the balance of the SIPC 
Fund to be less than $2.5 billion, but more than $150 million, for six 
months or more, SIPC alternatively could require that the assessment 
rate remain at \1/4\ of one percent.\13\ This situation is problematic 
not only for SIPC, but for its members. SIPC members might reasonably 
expect to pay a minimum assessment once the Fund reaches $2.5 billion, 
but even if they do, they could be subject to a sudden increase in the 
assessment as the rate returns to \1/4\ of one percent.
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    \13\ Article 6, Sec.  1(a)(1)(C)(i).
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    To provide clarity in this situation and to maintain the SIPC Fund 
at or above the target balance, and to offer some relief in the 
assessment that members must pay while reducing the likelihood of 
sudden changes in the rates, SIPC proposes to amend Article 6 as 
follows.
    First, when the SIPC Fund reaches $2.5 billion and is projected to 
be at $2.5 billion for six months or more, SIPC will consider the 
balance of its unrestricted net assets, as reflected in its most recent 
audited Statement of Financial Position. Among other items, included 
within the calculation of unrestricted net assets is provision for 
trustees' estimated costs to complete ongoing customer protection 
proceedings.\14\ Thus, in setting the assessment rate, SIPC will 
consider not only the balance of the SIPC Fund, but projected long-term 
liabilities.
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    \14\ See, e.g., 2015 SIPC Annual Report at 20 (http://www.sipc.org/Content/media/annual-reports/2015-annual-report.pdf).
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    Second, SIPC will impose an annual assessment rate of 0.15 percent 
of a member's net operating revenues from the securities business \15\ 
if (A) the amount of the SIPC Fund is at $2.5 billion or more; (B) SIPC 
has determined that the Fund will remain at or above $2.5 billion for 
at least six months; but

[[Page 39988]]

(C) SIPC's unrestricted net assets, as reflected in its most recent 
audited Statement of Financial Condition, are less than $2.5 billion. 
This measure establishes an intermediary assessment rate of 0.15 
percent between the \1/4\ of one percent assessment imposed on SIPC 
members and the minimum assessment, and provides for a more gradual 
progression toward the imposition of a minimum assessment.
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    \15\ Net operating revenues from the securities business are 
gross revenues from the securities business, as defined in Section 
16(9) of SIPA, 15 U.S.C. 78lll(9), less total interest and dividend 
expense, but not exceeding total interest and dividend income. See 
Article 6, Sec.  1(g). See also http://www.sipc.org/Content/media/filing-forms/SIPC-6-20130830.PDF.
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B. Amendment of the Effective Date of a Change in the Assessment
    In addition to the foregoing, SIPC proposes to amend Article 6 with 
respect to when a change in assessments becomes effective. Currently, 
Article 6, Section 1(a)(1), provides that a change in assessments is to 
occur on the first day of the month following the date on which SIPC 
announces a change in the assessment and continue until SIPC provides 
otherwise (``Notice Provision''). In the ordinary course and to give as 
much notice to members as possible, the SIPC Board of Directors 
determines the rate of assessment at its September Meeting. The Board's 
determination is announced shortly thereafter but is not made effective 
until the first day of the following year. See, e.g., http://www.sipc.org/for-members/assessment-rate. SIPC last announced an 
assessment rate change (from a minimum assessment to the current \1/4\ 
of one percent) on March 2, 2009, to take effect on April 1, 2009. The 
assessment rate has continued unchanged since then.
    In order to give its members as much notice as possible of the 
assessment rate for the following year, SIPC has determined to amend 
the Notice Provision. An assessment rate will be effective on the first 
day of the year following the date on which SIPC announces its 
determination, consistent with SIPC's practice that the determination 
of the rate normally will occur in September. There may be emergency 
situations, however, when the need for an assessment rate to become 
effective is more immediate. In that case, the assessment rate will be 
effective on the date announced by SIPC provided that the exigency of 
the circumstances so warrants.

II. Need for Public Comment

    Section 3(e)(1) of SIPA provides that the Board of Directors of 
SIPC must file a copy of any proposed bylaw change with the Commission, 
accompanied by a concise general statement of the basis and purpose of 
the proposed bylaw change.\16\ The proposed bylaw change will become 
effective thirty days after the date of filing with the Commission or 
upon such later date as SIPC may designate or such earlier date as the 
Commission may determine unless: (A) The Commission, by notice to SIPC 
setting forth the reasons for such action, disapproves the proposed 
bylaw change as being contrary to the public interest or contrary to 
the purposes of SIPA; or (B) the Commission finds that the proposed 
bylaw change involves a matter of such significant public interest that 
public comment should be obtained, in which case it may, after 
notifying SIPC in writing of such finding, require that the procedures 
for proposed SIPC rule changes in section 3(e)(2) of SIPA be followed 
with respect to the proposed bylaw change.\17\
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    \16\ 15 U.S.C. 78ccc(e)(1).
    \17\ 15 U.S.C. 78ccc(e)(1).
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    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 assessment methodology, the 
Commission finds, pursuant to section 3(e)(1)(B) of SIPA,\18\ 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 proposed rule changes in section 3(e)(2) of 
SIPA \19\ should be followed. As required by section 3(e)(1)(B) of 
SIPA, the Commission has notified SIPC of this finding in writing.
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    \18\ 15 U.S.C. 78ccc(e)(1)(B).
    \19\ 15 U.S.C. 78ccc(e)(2).
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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 (A) as the Commission 
may designate of not more than ninety days after such date if it finds 
such longer period to be appropriate and publishes its reasons for so 
finding or (B) as to which SIPC consents, the Commission shall: (i) By 
order approve such proposed rule change; or (ii) Institute proceedings 
to determine whether such proposed rule change should be 
disapproved.\20\
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    \20\ 15 U.S.C. 78ccc(e)(2)(B).
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IV. Text of Proposed Bylaw Change

    The text of the proposed bylaw change is provided below. Proposed 
new language is in italics; proposed deletions are in brackets.
ARTICLE 6
ASSESSMENTS
Section 1. General
    (a) Amount of Assessment.
    (1) The amount of each member's assessment for the member's fiscal 
year shall [either be (a) the minimum amount or (b)] be the product of 
the assessment rate established by SIPC for that fiscal year and either 
the member's gross or net revenues from the securities business, as 
follows:
    (A) The assessment rate shall be one-fourth (\1/4\) of one (1) 
percent per annum of net operating revenues from the member's 
securities business [until] for each calendar year or part thereof 
unless SIPC determines that the balance of the SIPC Fund, as defined in 
Section 4(a)(2) of the Act, exclusive of confirmed lines of credit, (i) 
has aggregated a [target] balance of $2.5 billion, and (ii) will remain 
at or above $2.5 billion for six months or more.
    (B) Notwithstanding the provisions of Section 1(a)(1)(A) herein, if 
SIPC determines that the balance of the SIPC Fund, as defined in 
Section 4(a)(2) of the Act, exclusive of confirmed lines of credit, (i) 
has aggregated $2.5 billion, and (ii) will remain at or above $2.5 
billion for six months or more, but SIPC's unrestricted net assets, as 
reflected in SIPC's most recent audited Statement of Financial 
Position, are less than $2.5 billion, the assessment rate shall be 0.15 
percent per annum of net operating revenues from the member's 
securities business for each calendar year or part thereof.
    (C) If SIPC determines that the balance of the SIPC Fund, as 
defined in Section 4(a)(2) of the Act, exclusive of confirmed lines of 
credit, has aggregated $2.5 billion or more, and will remain at or 
above $2.5 billion for six months or more, and SIPC's unrestricted net 
assets, as reflected in SIPC's most recent audited Statement of 
Financial Position, are at or above $2.5 billion, members shall pay a 
minimum assessment, which shall be 0.02 percent of the net operating 
revenues from the securities business for each calendar year or part 
thereof.
    [C](D) Anything to the contrary herein notwithstanding, if at any 
time SIPC determines that the balance of the SIPC Fund, as defined in 
Section 4(a)(2) of the Act, exclusive of confirmed lines of credit, 
aggregates or is reasonably likely to aggregate:
    (i) less than [the target balance of] $2.5 billion and will likely 
remain less than $2.5 billion for a period of six (6) months or more--
the amount of each member's assessment shall be at an

[[Page 39989]]

assessment rate of one-fourth (\1/4\) of one (1) percent per annum of 
net operating revenue.
    (ii) less than $150,000,000--the amount of each member's assessment 
shall be at an amount to be determined by SIPC, but in no case shall 
the amount of each member's assessment be less than an assessment rate 
of one-fourth (\1/4\) of one (1) percent per annum of such member's 
gross revenues from the securities business.
    (iii) less than $100,000,000--the amount of each member's 
assessment shall be at an amount to be determined by SIPC, but in no 
case shall the amount of each member's assessment be less than an 
assessment rate of one-half (\1/2\) of one (1) percent per annum of 
such member's gross revenues from the securities business.
    (iv) The amount of each member's assessment shall not exceed one-
half (\1/2\) of one (1) percent per annum of such member's gross 
revenues from the securities business, unless SIPC determines that a 
rate in excess of one-half (\1/2\) of one (1) percent during any twelve 
(12) month period will not have a material adverse effect on the 
financial condition of its members or their customers. No assessment 
made pursuant to this Section 1(a)(1) shall require payments during any 
such period that exceed in the aggregate one (1) percent of any 
member's gross revenues from the securities business for such period.
    (2) Any change in assessments made in accordance with [the above] 
Section 1(a)(1) herein shall commence on the first day of the [month] 
year following the date on which SIPC announces its determination, or 
on such other date if the exigency of the circumstances so warrants in 
SIPC's determination, and continue until such time as SIPC provides 
otherwise.
    (3) Commencing on the first day of the month following the date on 
which SIPC borrows moneys pursuant to Section 4(f) or Section 4(g) of 
the Act, and continuing while any such borrowing is outstanding and 
until such further time as SIPC provides otherwise, the amount of each 
member's assessment shall be at an assessment rate of not less than 
one-half (\1/2\) of one (1) percent per annum of such member's gross 
revenues from the securities business.
    (b) Payments. Assessments shall be payable at such times and in 
such manner as may be determined by SIPC's Vice President--Finance with 
the approval of the Chairman.
    (c) Collection of General Assessments. Each member of the 
Corporation who is a member of a self-regulatory organization shall pay 
assessments to its collection agent. In the case of members who are not 
members of any self-regulatory organization, assessments shall be paid 
directly to the Corporation.
    (d) Report by Collection Agents. Within 45 days after each due 
date, each self-regulatory organization which is the collection agent 
shall submit a written report to the Corporation as to any entity for 
whom it acts as collection agent whose filing or assessment payment has 
not been received.
    (e) Interest on Assessments. If all or any part of an assessment 
payable under Section 4 of the Act has not been received by the 
collection agent within 15 days after the due date thereof, the member 
shall pay, in addition to the amount of the assessment, interest at the 
rate of 20% per annum on the unpaid portion of the assessment for each 
day it has been overdue. If any broker or dealer has incorrectly filed 
a claim for exclusion from membership in the Corporation, such broker 
or dealer shall pay, in addition to assessments due, interest at the 
rate of 20% per annum on the unpaid assessment for each day it has not 
been paid since the date on which it should have been paid.
    (f) Gross Revenues. The term ``gross revenues from the securities 
business'' includes the revenues in the definition of gross revenues 
from the securities business set forth in the applicable sections of 
the Act.
    (g) Net Operating Revenues. The term ``net operating revenues from 
the securities business'' means gross revenues from the securities 
business less interest and dividend expenses, and includes those 
clarifications as are set forth in the SIPC assessment forms and 
instructions.
Section 2. Overpayments
    If the final annual reconciliation filed by a terminated member 
reflects an assessment overpayment carried forward that exceeds 
$150.00, SIPC may refund such excess to the member upon receipt of the 
member's written request therefor and after the member's SIPC 
collection agent has confirmed to SIPC that all of the member's SIPC 
assessment form filings and payments and reports required by SEC Rule 
17a-5 covering periods through the termination date have been reviewed 
and accepted.
Section 3. Interpretation of Terms
    For purposes of this Article:
    (a) The term ``securities in trading accounts'' shall mean 
securities held for sale in the ordinary course of business and not 
identified as having been held for investment.
    (b) The term ``securities in investment accounts'' shall mean 
securities that are clearly identified as having been acquired for 
investment in accordance with provisions of the Internal Revenue Code 
applicable to dealers in securities.
    (c) The term ``fees and other income from such other categories of 
the securities business'' shall mean all revenue related either 
directly or indirectly to the securities business except revenue 
included in Section 16(9)(A)-(K) and revenue specifically excepted in 
Section 4(c)(3)(C).

V. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing 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 email to rule-comments@sec.gov. Please include 
File Number SIPC-2016-01 on the subject line.

Paper Comments

     Send paper comments to Brent J. Fields, Secretary, 
Securities and Exchange Commission, 100 F Street NE., Washington, DC 
20549-1090.

All comments should refer to File Number SIPC-2016-01. 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 amendments, all written 
statements with respect to the proposed bylaw change that are filed 
with the Commission, and all written communications relating to the 
proposed bylaw 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 
10:00 a.m. and 3:00 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 available publicly.
    All submissions should refer to File Number SIPC-2016-01, and 
should be submitted on or before July 11, 2016.


[[Page 39990]]


    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(f)(2)(i) & 200.30-3(f)(3).
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Brent J. Fields,
Secretary.
[FR Doc. 2016-14499 Filed 6-17-16; 8:45 am]
BILLING CODE 8011-01-P


