[Federal Register Volume 85, Number 20 (Thursday, January 30, 2020)]
[Notices]
[Pages 5513-5516]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-01611]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. SIPA-180A; 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; Correction

January 24, 2020.
    Pursuant to Section 3(e)(1) of the Securities Investor Protection 
Act of 1970 (``SIPA''),\1\ on October 8, 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 change would take effect pursuant to section 3(e)(1) of 
SIPA.\2\ 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proposed bylaw change, which replaced and superseded the original 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. On December 10, 2019, SIPC 
consented to a 90-day extension of time before the proposed bylaw 
change, as revised by Amendment No. 1, would take effect pursuant to 
section 3(e)(1) of SIPA.\3\ 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.\4\ Therefore, pursuant to 
section 3(e)(2)(A) of SIPA,\5\ the Commission is publishing this notice 
to solicit comment from interested persons on the proposed bylaw 
change, as revised by Amendment No. 1.\6\
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    \1\ 15 U.S.C. 78ccc(e)(1).
    \2\ Id.
    \3\ Id.
    \4\ 15 U.S.C. 78ccc(e)(1)(B).
    \5\ 15 U.S.C. 78ccc(e)(2)(A).
    \6\ This notice of SIPC's filing of a proposed bylaw change, as 
revised by Amendment No. 1, relating to SIPC Board compensation, 
supersedes the notice originally published in the Federal Register 
on January 23, 2020. See Securities Investor Protection Corporation; 
Notice of Filing of Proposed Bylaw Change, as Revised by Amendment 
No. 1, Relating to SIPC Board Compensation, Release No. SIPA-180 
(Jan. 16, 2020), 85 FR 3960 (Jan. 23, 2020). The notice published on 
January 23, 2020 inadvertently referenced a provision from the 
original version of the proposed bylaw change that would have 
provided for a re-evaluation of Board honoraria every ten years. 
SIPC's proposed bylaw change, as revised by Amendment No. 1, does 
not propose a re-evaluation of Board honoraria every ten years.
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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

    On October 7, 2019, pursuant to Section 3(e)(1) of SIPA, 15 U.S.C. 
78ccc(e)(1),\7\ SIPC submitted for filing with the Commission a 
proposed amendment to Article 2, Section 6, of the SIPC Bylaws. On 
November 18, 2019, SIPC submitted a revised version of the 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 Board.
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    \7\ For convenience, reference hereinafter to provisions of SIPA 
shall be to the United States Code and shall omit ``15 U.S.C.''.
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    As amended, Article 2, Section 6, would: (1) Change the Board 
Chairperson's yearly honorarium from

[[Page 5514]]

$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; and (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.
    The revised version of the proposed bylaw amendment was approved by 
the SIPC Board on November 14, 2019. 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 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:

----------------------------------------------------------------------------------------------------------------
       Bylaw date                   Bylaw                 Chairman          Vice chairman     Industry directors
----------------------------------------------------------------------------------------------------------------
1994....................  Art. 2, Sec.   6........  $1,000/meeting $500/ $500/meeting $500/   Expenses only.
                                                     day for official     day for official
                                                     business +           business +
                                                     expenses.            expenses.
2006....................  Art. 2, Sec.   6........  $15,000 honorarium   $6,250 honorarium +  $6,250 honorarium
                                                     + expenses.          expenses.            + expenses.
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    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

[[Page 5515]]

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 
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 $192,300. 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.
    At its Meeting on November 14, 2019, the Board adopted the 
recommendations of the non-Government Directors, and agreed that the 
requested amendment, if approved, would take effect six months from the 
date of approval or non-disapproval by the Commission.

The Proposed Bylaw Amendment

    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, SIPA Sec.  78ddd(a)(1), and no 
taxpayer monies are used.
    Having extensively considered the matter, the Board has determined 
that the Bylaw should be amended.

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.\8\ 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.\9\
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    \8\ 15 U.S.C. 78ccc(e)(1).
    \9\ 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,\10\ 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 
\11\ be followed. As required by section 3(e)(1)(B) of SIPA,\12\ the 
Commission has notified SIPC of this finding in writing.
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    \10\ 15 U.S.C. 78ccc(e)(1)(B).
    \11\ 15 U.S.C. 78ccc(e)(2).
    \12\ 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.\13\
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    \13\ 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

[[Page 5516]]

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.

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 20, 2020.


    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 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. 2020-01611 Filed 1-29-20; 8:45 am]
 BILLING CODE 8011-01-P


