[Federal Register Volume 85, Number 15 (Thursday, January 23, 2020)]
[Notices]
[Pages 3960-3963]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-01024]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. SIPA-180; File No. SIPC-2019-01]


Securities Investor Protection Corporation; Notice of Filing of 
Proposed Bylaw Change, as Revised by Amendment No. 1, Relating to SIPC 
Board Compensation

January 16, 2020.
    Pursuant to Section 3(e)(1) of the Securities Investor Protection 
Act of 1970 (``SIPA''),\1\ on October 7, 2019 the Securities Investor 
Protection Corporation (``SIPC'') filed with the Securities and 
Exchange Commission (``Commission'') a proposed bylaw change relating 
to the SIPC Board of Directors' (``Board'') compensation. On October 
24, 2019, SIPC consented to a 90-day extension of time before the 
proposed bylaw amendments would take effect pursuant to section 3(e)(1) 
of SIPA. On November 19, 2019, SIPC filed a revised version of the 
proposed bylaw change, which replaced and superseded the original 
proposed bylaw change in its entirety. Pursuant to section 3(e)(1)(B) 
of SIPA, the Commission finds that the proposed bylaw change, as 
revised by Amendment No. 1, involves a matter of such significant 
public interest that public comment should be obtained.\2\ Therefore, 
pursuant to section 3(e)(2)(A) of SIPA, the Commission is publishing 
this notice to solicit comment from interested persons on the proposed 
bylaw change, as revised by Amendment No. 1.\3\
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    \1\ 15 U.S.C. 78ccc(e)(1).
    \2\ 15 U.S.C. 78ccc(e)(1)(B).
    \3\ 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 
change, as revised by Amendment No. 1, 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 Change Relating to SIPC Board Compensation

    Pursuant to Section 3(e)(1) of SIPA, SIPC hereby submits for filing 
with the Commission a proposed amendment to Article 2, Section 6, of 
the SIPC Bylaws. Article 2, Section 6, of the Bylaws relates to the 
honoraria paid to non-Governmental members of the SIPC Board.
    As amended, Article 2, Section 6, would: (1) Change the Board 
Chairperson's yearly honorarium from $15,000 to $28,000; (2) change the 
Directors' yearly honorarium from $6,250 to $12,000; (3) while the 
position of Chairperson remains vacant, authorize the Board Vice 
Chairperson who serves as acting Chairperson for a continuous twelve 
month period, to receive an honorarium of $28,000; (4) while the 
positions of Chairperson and Vice Chairperson remain vacant, authorize 
any Director, to whom the SIPC Board delegates authority to perform 
certain functions of the Chairperson, to receive an honorarium of 
$28,000 provided that the Director performs those functions for a 
continuous twelve month period; and (5) provide for a re-evaluation of 
Board honoraria every ten (10) years under a formula tied to the Senior 
Executive Service pay scale.
    The proposed bylaw amendment was approved by the SIPC Board. Under 
SIPA section 78ccc(e)(1), unless it is disapproved by the Commission or 
the Commission determines that the matter is of such significant public 
interest as

[[Page 3961]]

to warrant public comment, the amendment will take effect thirty (30) 
days after a copy is filed with the Commission. The Board has provided 
that, if approved by the Commission, the proposed amendment would not 
be implemented until six (6) months from the date of Commission 
approval or non-disapproval. Section IV below provides the text of the 
proposed changes to Article 2, Section 6, of the Bylaws.

Background

    The SIPC Board consists of seven members. Five of SIPC's Directors 
are appointed by the President of the United States and confirmed by 
the Senate. Of the five Directors, three are associated with, and 
representative of, the securities industry (``Securities Directors''), 
and two are from outside of the industry. The Directors from outside of 
the securities industry serve as Chairman and Vice Chairman of SIPC. In 
addition, one SIPC Director is an officer or employee of the Department 
of the Treasury and one Director is an officer or employee of the 
Federal Reserve Board. SIPA Sec.  78ccc(c)(1)-(3).
    Under SIPA Section 78ccc(c)(5), all matters relating to Director 
compensation are as provided in the SIPC Bylaws. Since 1994, when the 
position of Chairperson ceased to be a full-time position, the 
honoraria awarded to the Directors have been as follows:

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            Bylaw date                    Bylaw                 Chairman                Vice Chairman                    Industry directors
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1994.............................  Art. 2, Sec.   6...  $1,000/meeting; $500/day  $500/meeting; $500/day    Expenses only.
                                                         for official business +   for official business +
                                                         expenses.                 expenses.
2006.............................  Art. 2, Sec.   6...  $15,000 honorarium +      $6,250 honorarium +       $6,250 honorarium + expenses.
                                                         expenses.                 expenses.
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    Because the Government Directors are ineligible, the recipients of 
the honoraria are limited to the Directors from the private sector. The 
honoraria are paid from the SIPC Fund, 15 U.S.C. 78ddd(a)(1), and no 
taxpayer monies are used.
    The amounts of the Director honoraria have been the same for more 
than 10 years. For the reasons discussed below, the Board has 
determined that it is appropriate that the proposed changes to Article 
2, Section 6, of the Bylaws be made.

General Statement of Basis and Purpose of Proposed Changes

Enhanced Responsibilities and Risk
    The SIPC Board sets the direction and policies for the Corporation. 
Since the 2008 financial crisis, SIPC's responsibilities have grown, 
and greater demands have been placed upon the time, commitment, and 
energy, of the Directors.
    The Directors oversee a Fund which currently stands at more than 
$3.3 billion. The size of the Fund is modest compared to the amounts of 
customer assets at risk in SIPA liquidations over the last several 
years. These have included MF Global Inc., involving the largest 
commodities brokerage liquidation in history; Lehman Brothers Inc., 
with $106 billion owed to more than 111,000 customers; and Bernard L. 
Madoff Investment Securities LLC, with over $20 billion of customer 
assets owed. Each of these liquidations contained or contains complex 
and significant legal or operational hurdles for their resolution. 
Today, such large cases cannot be viewed as isolated events or SIPC's 
involvement in them as incidental. For example, in a too-big-to-fail 
situation, Congress has given SIPC an important role. Under the Dodd-
Frank Wall Street Reform and Consumer Protection Act, SIPC serves as 
trustee in the orderly liquidation of a covered broker-dealer. See 12 
U.S.C. 5385(a)(1).
    Given the breadth of SIPC's mission, whether the Fund is sufficient 
to satisfy SIPA's goal of customer protection is one of the most 
important issues that Directors face. The potential exposure arising 
from the liquidation of large firms alone highlights the importance of 
the Board's decision-making.
    The sizeable amounts at stake in recent cases also create more risk 
for the Directors including the risk that Directors may be sued for 
tactical reasons, however frivolous such suits may be. For example, in 
the Madoff case, the SIPC Board and its President were sued in a multi-
million dollar complaint brought by Madoff investors. Canavan v. 
Harbeck, Case No. 2:10-cv-00954-FSH-PS (D.N.J.). Although the Directors 
are shielded from liability for their good faith actions or omissions 
under SIPA Section 78kkk(c), the burden of having to defend against a 
law suit, the uncertainty of the outcome of litigation, the demands on 
a Director's time, and the reputational risk to the Director, remain.
    Today, more accountability is asked of corporate directors. At 
SIPC, the Directors not only oversee the administration of the quasi-
public SIPC Fund, but also of the SIPC Employees' Savings Plan, and the 
SIPC Employees' Retirement Plan. As a result of their role in these and 
other matters, the Board must carefully oversee Management and the 
policies and procedures Management has put in place.
Time Commitment
    SIPC Directors willingly devote their time to SIPC, often at the 
expense of other important commitments, and potential compensation, 
outside of their SIPC responsibilities. The time, even for some 
Directors to travel to SIPC, can be burdensome since under SIPA section 
78ccc(c)(2)(C)(i), the Securities Directors cannot be from the same 
geographical area of the United States. SIPC Directors travel from 
their home base to Washington, DC, to attend regular Board, as well as 
Committee, Meetings. There are three committees at SIPC on which the 
Directors serve: One for investments, another for compensation, and a 
third, for audit and budget. See Article 3, Section 1, of the SIPC 
Bylaws. In addition to their attendance and participation at Meetings, 
the Directors regularly meet in Executive Session to discuss matters of 
importance to SIPC business.
Attracting and Retaining Qualified Directors
    In order for the SIPC program to be successful, it must have a 
Board that is engaged, resourceful, and willing to devote the time and 
energy to the program and to be committed to it. While it is an honor 
to be appointed as a Director, there should be some recognition of the 
contributions made by these individuals. Measured against the demands 
placed upon the Directors and the responsibilities and risks they are 
expected to assume, the changes proposed by the Board are modest.
Basis for the Amounts Proposed
    In considering a possible Bylaw change, the Board, through its 
Government Directors, commissioned Korn/Ferry International (``Korn/
Ferry''), a leading global management and executive consulting firm, to 
provide recommendations with respect to compensation for SIPC Board

[[Page 3962]]

members, including the Chair and Vice Chair. In undertaking the 
engagement, Korn/Ferry constructed a peer group of 23 organizations 
comparable to SIPC and analyzed their Director compensation. The peer 
group included non-profit groups, regulatory advocacy organizations, as 
well as federally funded ones.
    Based upon its analysis, Korn/Ferry concluded that entities similar 
to SIPC in purpose and responsibilities typically provide some 
compensation to their Directors. Specifically, with respect to SIPC, 
Korn/Ferry recommended that:
    (1) Director compensation consist of an annual retainer paid 
quarterly and ranging between $30,000 and $50,000;
    (2) The Vice Chair receive an additional amount of $3,000 to $5,000 
per year; and
    (3) The Chair receive an additional $10,000 to $15,000 per year.
    Korn/Ferry Director Compensation Analysis, dated May 31, 2019, at 
10.
    Independently, the Government Directors formulated a separate 
approach to the matter. Under their analysis, they reasoned that 
because the non-Government Directors are Presidential appointees 
confirmed by the Senate who render a public service, it would be 
appropriate to measure the amount of a Director honorarium against the 
pay of a Senior Executive Service (``SES'') Government employee. The 
maximum amount under the SES pay scale currently is $189,600. Based 
upon an average of 16 days of service per year comprised of six days of 
meetings, five days for preparation, and five days for ad hoc work, the 
Directors concluded that the non-Government Directors should receive an 
honorarium of $12,000 per year which would continue to be paid in 
quarterly installments. Applying the current ratio of Chair versus non-
Chair honoraria, the non-Government Directors calculated the honorarium 
of the Chair at $28,000. The Board also calculated that an adjustment 
for inflation since the honoraria were last set in 2006 would have 
resulted in an honorarium of more than $19,000 for the Chair.
    The Board adopted the recommendations of the non-Government 
Directors, and agreed with their proposal that the amount of the 
honoraria be reviewed every ten years, and adjusted according to the 
above methodology. The Directors also agreed that the requested 
amendment, if approved, would take effect six months from the date of 
approval or non-disapproval by the Commission.

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.\4\ 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: (1) 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 (2) 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 SIPC proposed rule changes in section 3(e)(2) of SIPA be followed 
with respect to the proposed bylaw change.\5\
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    \4\ 15 U.S.C. 78ccc(e)(1).
    \5\ 15 U.S.C. 78ccc(e)(1).
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    Compensation paid to members of the financial service industry and 
paid to officials serving the public interest has become a topic of 
public interest in recent years. Therefore, the Commission finds, 
pursuant to section 3(e)(1)(B) of SIPA,\6\ that the proposed bylaw 
changes involve a matter of such significant public interest that 
public comment should be obtained and is requiring that the procedures 
applicable to SIPC proposed rule changes in section 3(e)(2) of SIPA \7\ 
be followed. As required by section 3(e)(1)(B) of SIPA,\8\ the 
Commission has notified SIPC of this finding in writing.
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    \6\ 15 U.S.C. 78ccc(e)(1)(B).
    \7\ 15 U.S.C. 78ccc(e)(2).
    \8\ 15 U.S.C. 78ccc(e)(1)(B).
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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 bylaw change; or (ii) institute proceedings 
to determine whether such proposed bylaw change should be 
disapproved.\9\
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    \9\ 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, as revised by Amendment No. 
1, is provided below. Proposed new language is in italics; proposed 
deletions are in brackets.
ARTICLE 2
BOARD OF DIRECTORS
Section 6. Honorarium and Reimbursement of Expenses
    The Chairman of the Corporation shall receive a yearly honorarium 
of $[15,000]28,000. The Chairman also shall be reimbursed for expenses 
incurred in connection with official business of the Corporation. The 
Vice Chairman shall receive a yearly honorarium of $[6,250]12,000, 
except that, if the position of Chairman is vacant and the Vice 
Chairman serves as acting Chairman for a continuous twelve-month 
period, then the Vice Chairman shall receive a yearly honorarium of 
$28,000 for such period, calculated on a ratable basis for any partial 
period of such service in excess of the first twelve-month period. The 
Vice Chairman also shall be reimbursed for expenses incurred in 
connection with official business of the Corporation. The three 
Directors selected from the securities industry (``Securities 
Directors'') each shall receive a yearly honorarium of $[6,250]12,000, 
except that, if the positions of Chairman and Vice Chairman are vacant 
and, during such vacancy and pursuant to a delegation of authority from 
the Board, one of the Securities Directors performs certain functions 
of the Chairman for a continuous twelve-month period, then that 
Securities Director shall receive a yearly honorarium of $28,000 for 
such period, calculated on a ratable basis for any partial period of 
such service in excess of the first twelve-month period. The 
[three]Securities Directors [selected from the securities industry] 
also shall be reimbursed for expenses incurred in connection with 
official business of the Corporation. [The yearly honoraria shall be 
paid in quarterly installments as of November 21, 2006.] The remaining 
two Directors shall receive no honoraria from the Corporation and shall 
not be reimbursed by the Corporation for their official business 
expenses.
    The honoraria described herein shall be paid in quarterly 
installments beginning on May 6, 2020. At ten year intervals 
thereafter, without further amendment of these Bylaws, the Board shall 
have authority to evaluate and adjust the amounts of the honoraria 
provided herein. In adjusting the amount of the honoraria, the Board

[[Page 3963]]

shall give due consideration to the number of days of service rendered 
by such member of the Board, and the maximum pay of a Senior Executive 
Service Government employee.

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-2019-01 on the subject line.

Paper Comments

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

All comments should refer to File Number SIPC-2019-01. 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 website (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 is 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 website 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. Copies of the filing also will be available for inspection 
and copying at the principal office of the Commission. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly.
    All submissions should refer to File Number SIPC-2019-01, and 
should be submitted on or before February 13, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(f)(2)(i); 17 CFR 200.30-3(f)(3).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-01024 Filed 1-22-20; 8:45 am]
BILLING CODE 8011-01-P


