[Federal Register Volume 81, Number 37 (Thursday, February 25, 2016)]
[Notices]
[Pages 9561-9563]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-04022]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. SIPA-174; File No. SIPC-2016-01]


Securities Investor Protection Corporation

AGENCY: Securities and Exchange Commission.

ACTION: Notice of the determination of the Board of Directors of the 
Securities Investor Protection Corporation (``SIPC'') regarding the 
standard maximum cash advance amount, beginning January 1, 2017.

-----------------------------------------------------------------------

SUMMARY: Pursuant to Section 3(e)(2) of the Securities Investor 
Protection Act of 1970 (``SIPA''),\1\ notice is hereby given that the 
Board of Directors of SIPC (the ``Board'') filed with the Securities 
and Exchange Commission (``Commission'') on February 17, 2016 
notification that the Board has determined, beginning January 1, 2017, 
and for the five year period immediately thereafter, that the standard 
maximum cash advance amount available to satisfy customer claims for 
cash in a SIPA liquidation proceeding will remain at $250,000. The 
Commission is publishing this notice to solicit comments on Board's 
determination from interested parties.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78ccc(e)(2).

---------------------------------------------------------------------------
DATES: Comments are to be received on or before March 11, 2016.

ADDRESSES: 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 [email protected]. 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

[[Page 9562]]

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 this Notice that are filed with the 
Commission, and all written communications relating to the Notice 
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.

FOR FURTHER INFORMATION CONTACT: Michael A. Macchiaroli, Associate 
Director, at (202) 551-5525; Thomas K. McGowan, Associate Director, at 
(202) 551-5521; Randall W. Roy, Deputy Associate Director, at (202) 
551-5522; Timothy C. Fox, Branch Chief, at (202) 551-5687; or Rose 
Russo Wells, Senior Counsel, at (202) 551-5527; Office of Financial 
Responsibility, Division of Trading and Markets, Securities and 
Exchange Commission, 100 F Street NE., Washington, DC 20549-7010.

I. SIPC'S Statement of the Purpose of and Statuory Basis of the 
Determination of the Board of Directors of SIPC Not To Adjust the 
Standard Maximum Cash Advance Amount for Inflation

    In its filing with the Commission, SIPC included statements 
concerning the purpose of and statutory basis of the SIPC Board's 
determination. The text of these statements may be examined at the 
places specified above, and appear in the text, below.
* * * * *
    ``Under the Securities Investor Protection Act, 15 U.S.C. Section 
78aaa et seq. (``SIPA''), the Board of SIPC must decide, every five 
years beginning no earlier and no later than January 1, 2011, whether 
to adjust for inflation the standard maximum amount that SIPC can 
advance to satisfy customer claims for cash under SIPA. See SIPA Sec.  
78fff-3(e)(1).\2\ The Board considered the question at its Meeting on 
June 18, 2015, and on July 16, 2015, after further deliberation, the 
Board reached its determination. The Board's determination is subject 
to the approval of the Commission as provided under SIPA Section 
78ccc(e)(2).\3\ If approved, any adjustment to the standard cash 
maximum advance would take effect on January 1, 2017. See SIPA 78fff-
3(e)(4). Under SIPA Section 78fff-3(e)(3)(A), the SEC is required to 
publish in the Federal Register notice of the maximum amount.
---------------------------------------------------------------------------

    \2\ For convenience, references herein to provisions of SIPA 
shall be to the United States Code, and shall omit ``15 U.S.C.''
    \3\ SIPA Section 78ccc(e)(2) establishes procedures governing 
proposed changes to SIPC's rules.
---------------------------------------------------------------------------

    Per our notice to the Commission by letter dated August 18, 2015, 
this will re-affirm to the Commission that effective January 1, 2017, 
and for the five years immediately thereafter, the Board has determined 
that the maximum amount of the advance to satisfy a claim for cash will 
remain at the current level of $250,000 per customer.

Consideration of the Statutory Criteria

    In deciding whether to adjust the maximum cash advance amount, the 
Board is to consider the following criteria under SIPA Section 78fff-
3(e)(5):
    (A) The overall state of the fund and the economic conditions 
affecting members of SIPC;
    (B) the potential problems affecting members of SIPC; and
    (C) such other factors as the Board of Directors of SIPC may 
determine appropriate.
    In furtherance of the Board's consideration of the above factors, 
the SIPC staff solicited and received comments and/or data from the 
staffs of FINRA, SIFMA, the SEC, and the FDIC. The data related to 
member firms' aggregate leverage, liquidity, and default risk, and to 
aggregate customer free credit balances. The information was presented 
to the Board by the SIPC staff, as part of an analysis by the staff of 
the state of the SIPC Fund and its projected growth. The staff's 
analysis focused on SIPC's historical experience and examined (1) SIPC 
advances in past and present liquidation proceedings; (2) amounts 
generated from assessments on member broker-dealers; and (3) projected 
returns on SIPC investments. The analysis also considered a 2013 study 
by consultants engaged by SIPC to examine the potential impact on the 
SIPC Fund of an increase in the cash advance limit to $500,000. The 
conclusions reached by the staff in their analysis were corroborated by 
the data received from the aforementioned authorities and by the 2013 
consultants' study, namely, that the SIPC Fund is positioned to remain 
on a steady growth path for the foreseeable future, barring any 
unforeseen catastrophic event.
    The Board also reviewed the number of claims for cash exceeding the 
limit of protection in past and present liquidation proceedings. This 
data suggests that an inflation adjustment may not be necessary to 
further SIPC's purposes, but that if an inflation adjustment is made, 
its impact on the SIPC Fund may not be significant.
    Of the more than 625,000 allowed claims in completed or 
substantially completed liquidation proceedings as of December 31, 
2014, the unsatisfied portion of cash claims amounted to $25 million. 
More than half of that amount related to only three claims that were 
submitted when the limit of protection for cash claims was less than 
the current $250,000. In the six SIPA proceedings initiated since 2010, 
SIPC has advanced, net, funds for only one cash claim in excess of 
$250,000.
    The Board also noted that customer credit balances at brokerage 
firms had decreased at the end of 2013 and 2014, and that due to 
broker-dealers' offer of overnight ``sweep'' programs, customer free 
credit balances were being moved to bank accounts, with the protection 
of such accounts thereby transferred to the FDIC.
    With regard to FDIC deposit insurance, increases to the limit of 
protection for cash claims under SIPA historically have been in 
lockstep with increases in FDIC deposit insurance under the Federal 
Deposit Insurance Act, 12 U.S.C. 1821 et seq. (``FDIA'').\4\ In 2008, 
and again, in 2010, parity with deposit insurance was the primary 
reason for SIPC's request to Congress to increase the SIPA limit of 
protection for cash claims. FDIC coverage is currently $250,000. While 
the Federal Deposit Insurance Act includes similar language to SIPA 
related to adjusting for inflation, the adjustment is based upon a 
$100,000 coverage level, and the FDIC has not

[[Page 9563]]

increased coverage under the inflation provision.\5\
---------------------------------------------------------------------------

    \4\ The below compares the limits of protection for cash under 
SIPA and the FDIA:
    SIPA: $20,000 (Pub. L. 91-598, Sec.  6(f)(1)(A), 84 Stat. 1636, 
1651 (1970))
    FDIA: $20,000 (Pub. L. 91-151, Sec.  7, 83 Stat. 371, 375 
(1969))
    SIPA: $40,000 (Pub. L. 95-283, Sec.  9, 92 Stat. 249, 265 
(1978))
    FDIA: $40,000 (Pub. L. 93-495, Sec.  102(a), 88 Stat. 1500, 1502 
(1974))
    SIPA: $100,000 (Pub. L. 96-433, Sec.  1, 94 Stat. 1855 (1980))
    FDIA: $100,000 (Pub. L. 96-221, Sec.  308, 94 Stat. 132, 147 
(1980))
    SIPA: $250,000 (Pub. L. 111-203, Sec.  929H, 124 Stat. 1376, 
1865 (2010))
    FDIA: $250,000 ((temporary until 12/31/2009) Public Law No. 110-
343, Sec.  136, 122 Stat. 3765, 3799 (2008); (permanent) Public Law 
111-203, Sec.  335, 124 Stat. 1376, 1540 (2010)).
    \5\ 12 U.S.C. 1821(a)(1)(F)(i)(I). See Deposit Insurance 
Regulations; Permanent Increase in Standard Coverage Amount; 
Advertisement of Membership; International Banking; Foreign Banks, 
75 FR 49363 n.6 (Aug. 13, 2010).
---------------------------------------------------------------------------

    The Board expressed concern that a unilateral increase to the SIPA 
limit could have unintended consequences, particularly in light of the 
issue not having been widely studied or discussed. For example, 
increasing the SIPA limit above the deposit insurance limit could 
incentivize the movement of funds to brokerage accounts as a savings 
vehicle, an outcome not consistent with the intent of SIPA.
    Finally, the Board considered the amount by which the limit of 
protection for allowed cash claims would change if adjusted for 
inflation. Under SIPA Section 78fff-3(e)(1)(B), if the Board determines 
that an adjustment is appropriate, then $250,000 is to be multiplied by

[t]he ratio of the annual value of the Personal Consumption 
Expenditures Chain-Type Price Index (or any successor index 
thereto), published by the Department of Commerce, for the calendar 
year preceding the year in which such determination is made, to the 
published annual value of such index for the calendar year preceding 
the year in which this subsection was enacted.

    15 U.S.C. 78fff-3(e)(1)(B).\6\ Although the amount of the inflation 
adjustment need only be considered if the Board determines to adjust 
the $250,000 for inflation, see SIPA Section 78fff-3(e)(1), that 
determination would be meaningless if the adjustment resulted in no 
change. This was the case on January 1, 2011, when application of the 
formula would have increased the limit to the adjusted amount of 
$254,449.52.\7\ However, under SIPA Section 78fff-3(e)(2), because the 
adjusted amount must be rounded down to the nearest $10,000 if it is 
not a multiple of $10,000, the limit would have remained at $250,000. 
Even if it had determined to do so, the Board could not have adjusted 
the amount.
---------------------------------------------------------------------------

    \6\ Under SIPA Sections 78fff-3(d) and 78fff-3(e)(1), the Board 
was required to adjust the maximum cash advance, if at all, after 
December 31, 2010, but no later than January 1, 2011, and then, 
could do so every 5 years thereafter. Thus, the five-year period 
after January 1, 2011, would occur in 2016. Under SIPA Section 
78fff-3(e)(4), any adjustment to the amount of the cash advance 
would take effect on January 1 of the year immediately after the 
year in which the adjustment was made.
    \7\ The calculation would be as follows: $250,000 multiplied by 
1.017798--the ratio of 111.112 (the annual value of the Price Index 
published by the Department of Commerce for 2010, the calendar year 
preceding the year in which the determination was to be made), to 
109.169 (the published annual value of such index for 2009, the 
calendar year preceding the year in which the subsection was 
enacted)--equals $254,449.52.
---------------------------------------------------------------------------

Conclusion

    A present-day application of the formula would increase the limit 
by $20,000.\8\ The Board weighed the relevant factors against a 
potential adjustment of $20,000. The Board concluded that, on balance, 
in light of the unprecedented break with the FDIC limit that would 
result, with possibly harmful consequences, and the absence of evidence 
that an appreciable number of investors would be benefitted, an 
adjustment to the limit of protection for cash claims was not 
appropriate. Accordingly, the Board determined that the standard 
maximum cash advance amount should remain at $250,000 per customer.''
---------------------------------------------------------------------------

    \8\ The $20,000 is arrived at as follows: $250,000 multiplied by 
1.08763 which is the ratio of 108.763 (the annual value of the Price 
Index published by the Department of Commerce for calendar year 
2014), to 100.000 (the published annual value of the index for 2009, 
the calendar year preceding the year in which subsection 78fff-
3(e)(1)(B) was enacted) which equals $271,907.50. Rounded down to 
$270,000, the adjusted limit reflects an increase of $20,000 from 
the $250,000 limit. Because the determination is to be made for the 
calendar year 2016, the annual value of the Price Index to be used 
is for the ``calendar year preceding the year in which such 
determination is made,'' namely, the year 2015. However, the 2015 
annual value was not available until after the end of the year. This 
calculation therefore was conditioned on the assumption of no 
unexpected dramatic rise in inflation in calendar year 2015. See 
http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1#reqid=9&step=3&isuri=1&904=2009&903=64&906=a&905=2015&910=x&911=0.
---------------------------------------------------------------------------

* * * * *

II. Date of Effectiveness and Timing for Commission Action

    Within thirty-five days of the date of publication of this notice 
of the SIPC Board's determination in the Federal Register, or within 
such longer period (i) 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 (ii) as to 
which SIPC consents, the Commission shall:
    (A) By order approve such determination or
    (B) Institute proceedings to determine whether such determination 
should be disapproved.

III. Notice of the Determination of the SIPC Board Not To Adjust the 
Standard Maximum Cash Advance Amount for Inflation

    Effective January 1, 2016, the Board of Directors of the Securities 
Investor Protection Corporation determined that an inflation adjustment 
to the standard maximum cash advance amount, as defined in section 9(d) 
of the Securities Investor Protection Act, 15 U.S.C. 78fff-3(d), would 
not be appropriate for the five-year period beginning on January 1, 
2017. Accordingly, the Board determined that the standard maximum cash 
advance amount should remain at $250,000 per customer, effective 
January 1, 2017 and for the five years immediately thereafter.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\9\
---------------------------------------------------------------------------

    \9\ 17 CFR 200.30-3(f)(3).
---------------------------------------------------------------------------

    Dated: February 22, 2016.
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-04022 Filed 2-24-16; 8:45 am]
 BILLING CODE 8011-01-P