[Federal Register Volume 81, Number 64 (Monday, April 4, 2016)]
[Notices]
[Pages 19250-19252]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-07600]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. SIPA-176; File No. SIPC-2016-01]


Securities Investor Protection Corporation; Order Approving the 
Determination of the Board of Directors of the Securities Investor 
Protection Corporation Not To Adjust for Inflation the Standard Maximum 
Cash Advance Amount and Notice of the Standard Maximum Cash Advance 
Amount

March 30, 2016.

I. Background

    On February 17, 2016, the Securities Investor Protection 
Corporation (``SIPC'') filed with the Securities and Exchange 
Commission (``Commission''), under sections 9(e)(1) and 3(e)(2)(A) of 
the Securities Investor Protection Act of 1970 (``SIPA''),\1\ 
notification that SIPC's Board of Directors (the ``SIPC Board'') had 
determined that the standard maximum cash advance amount available to 
satisfy customer claims for cash in a SIPA liquidation proceeding would 
remain at $250,000 beginning January 1, 2017 and for the five-year 
period immediately thereafter. The Commission published for comment 
notice of the SIPC Board's determination in the Federal Register on 
February 25, 2016.\2\ The Commission did not receive any comments. The 
Commission today is approving, by order, the SIPC Board's 
determination. The Commission is also publishing notice that the 
standard maximum cash advance amount will remain $250,000 beginning 
January 1, 2017 and for the five-year period immediately thereafter.
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    \1\ See 15 U.S.C. 78fff-3(e)(1) and 15 U.S.C. 78ccc(e)(2)(A), 
respectively.
    \2\ See Securities Investor Protection Corporation, Release No. 
SIPA-174 (Feb. 22, 2016), 81 FR 9561 (Feb. 25, 2016). The notice set 
forth SIPC's statement of the purpose and statutory basis of the 
determination of the SIPC Board not to adjust the standard maximum 
cash advance amount for inflation (the ``February 17, 2016 SIPC 
Statement of Purpose''), which was attached to a letter from SIPC to 
the Commission, dated February 17, 2016.
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    The Dodd-Frank Wall Street Reform and Consumer Protection Act (the 
``Dodd-Frank Act'') \3\ amended SIPA to raise the ``standard maximum 
cash advance amount'' from $100,000 to $250,000 per customer.\4\ This 
aligned

[[Page 19251]]

that amount with the maximum insurance amount provided by the Federal 
Deposit Insurance Corporation (``FDIC'') to customers of a failed bank. 
The Dodd-Frank Act also amended SIPA to require the SIPC Board of 
Directors to determine, no later than January 1, 2011, and every five 
years thereafter, whether an inflation adjustment to the standard 
maximum cash advance amount available to satisfy customer claims in a 
SIPA liquation proceeding is appropriate.\5\ Any adjustment to the 
standard maximum cash advance amount takes effect on January 1 of the 
year immediately succeeding the calendar year in which the adjustment 
is made.\6\ The SIPC Board's determination on whether to make an 
adjustment is subject to Commission approval as provided under section 
3(e)(2) of SIPA.\7\ The Commission must publish notice of the standard 
maximum cash advance amount in the Federal Register no later than April 
5 of any calendar year in which SIPC is required to determine whether 
an inflation adjustment is appropriate.\8\
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    \3\ Public Law 111-203, 124 Stat. 1376 (July 21, 2010).
    \4\ In a liquidation of a broker-dealer performed under SIPA, a 
fund of customer property is established for priority distribution 
to customers ahead of all other creditors. Each customer is entitled 
to a pro rata share of the customer property to the extent of the 
customer's net equity in the customer's account. If the amount of 
customer property is insufficient to satisfy a customer's net equity 
claim, SIPC advances money to satisfy the claim up to $500,000 per 
customer, of which up to $250,000 (i.e., the standard maximum cash 
advance amount) can be used to satisfy a claim for cash. See 15 
U.S.C. 78fff-3.
    \5\ 15 U.S.C. 78fff-3(e)(1). For reasons discussed in the 
February 17, 2016 SIPC Statement of Purpose, SIPC did not make such 
a determination on January 1, 2011. See Securities Investor 
Protection Corporation, 81 FR 9561.
    \6\ 15 U.S.C. 78fff-3(e)(4).
    \7\ See 15 U.S.C. 78ccc(e)(2); 15 U.S.C. 78fff-3(e)(1).
    \8\ 15 U.S.C. 78fff-3(e)(3)(A).
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II. Determination of the SIPC Board Not To Adjust the Standard Maximum 
Cash Advance Amount

    SIPC filed with the Commission on February 17, 2016 notification 
that the SIPC Board had determined not to raise the standard maximum 
cash advance amount above $250,000, and thereby maintain it at that 
level beginning January 1, 2017 and for the five-year period 
immediately thereafter.\9\ In its February 17 filing, SIPC stated that 
applying the formula prescribed by SIPA in this instance would have 
increased the standard maximum cash advance amount by $20,000 and that 
the SIPC Board weighed the factors it considered in making its 
determination against an increase of that amount. However, for the 
reasons discussed below, the SIPC Board determined not to make the 
inflation adjustment.
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    \9\ See February 17, 2016 SIPC Statement of Purpose. As stated 
above, any adjustment to the standard maximum cash advance amount 
takes effect on January 1 of the year immediately succeeding the 
calendar year in which such an adjustment is made. See 15 U.S.C. 
78fff-3(e)(4). Therefore, the SIPC Board's determination to maintain 
the standard maximum cash advance amount at $250,000 takes effect on 
January 1, 2017.
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    SIPC described the factors the SIPC Board considered in making the 
determination to maintain the standard maximum cash advance amount at 
$250,000, including factors that it was required to consider under 
SIPA.\10\ In particular, the SIPC Board considered data and a related 
SIPC staff analysis examining broker-dealers' aggregate leverage, 
liquidity, default risk, and the aggregate number of customer free 
credit balances. The analysis concluded that the SIPC fund is 
positioned to remain on a steady growth path for the foreseeable 
future, barring any unforeseen catastrophic event.
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    \10\ The SIPC Board is required to consider the following 
criteria under SIPA: (1) The overall state of the fund and the 
economic conditions affecting members of SIPC; (2) the potential 
problems affecting members of SIPC; and (3) such other factors as 
the SIPC Board may determine appropriate. See 15 U.S.C. 78fff-
3(e)(5).
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    The SIPC Board also considered that, 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, the year the standard maximum cash 
advance amount was raised, SIPC has advanced funds for only one 
customer cash claim where the claim (but not the advance) exceeded 
$250,000.
    The SIPC Board also considered 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.
    Further, the SIPC Board considered the relationship between the 
amount of the SIPC standard maximum cash advance amount and the maximum 
amount of protection afforded by the FDIC to customers of a failed 
bank. Increases to the limit of protection for cash claims under SIPA 
historically have moved in lockstep with increases in FDIC deposit 
insurance. The SIPC Board considered that FDIC deposit insurance is 
currently $250,000. The SIPC 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 benefited, an adjustment to 
the limit of protection for cash claims in a SIPA liquidation 
proceeding would not be appropriate.\11\
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    \11\ See Securities Investor Protection Corporation, Release No. 
SIPA-174 (Feb. 22, 2016), 81 FR 9561 (Feb. 25, 2016).
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III. Discussion and Commission Order

    Section 3(e)(2)(A) of SIPA provides that the SIPC Board must file 
with the Commission any proposed amendment to a SIPC Rule.\12\ Section 
3(e)(2)(B) of SIPA provides that within thirty-five days of the date of 
publication of the notice of filing of a proposed rule change in the 
Federal Register, or within such longer period (1) 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 (2) 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. 
Further, section 3(e)(2)(D) of SIPA provides that the Commission shall 
approve a proposed rule change if it finds that the proposed rule 
change is in the public interest and is consistent with the purposes of 
SIPA.\13\ The SIPC Board's determination to not adjust the standard 
maximum cash advance amount is subject to the approval of the 
Commission as provided under section 3(e)(2) of SIPA.\14\
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    \12\ 15 U.S.C. 78ccc(e)(2)(A).
    \13\ 15 U.S.C. 78ccc(e)(2)(D).
    \14\ 15 U.S.C. 78fff-3(e)(1).
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    The Commission finds, pursuant to section 3(e)(2)(D) of SIPA, that 
the determination of the SIPC Board not to adjust for inflation the 
standard maximum cash advance amount of $250,000 beginning January 1, 
2017 and for the five-year period immediately thereafter is in the 
public interest and consistent with the purposes of SIPA. The 
Commission believes that maintaining the amount at $250,000 at this 
time to keep it aligned with the maximum amount of insurance provided 
by the FDIC is appropriate. For example, there could be unintended 
consequences resulting from raising the amount to a level that is 
higher than the maximum FDIC insurance amount, such as incentivizing 
investors to move additional funds to their brokerage accounts from 
bank accounts. Moreover, the Commission believes that maintaining the 
standard maximum cash advance amount at $250,000 is consistent with the 
public interest in light of the statistics considered by the SIPC Board 
that indicated that customer

[[Page 19252]]

claims for cash have been historically satisfied in full and the trend 
that customer credit balances at broker-dealers have been decreasing in 
recent years.\15\
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    \15\ See February 17, 2016 SIPC Statement of Purpose.
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    It is therefore ordered, pursuant to section 3(e)(2) of SIPA, that 
the determination by the SIPC Board that the standard maximum cash 
advance amount will remain at $250,000 beginning January 1, 2017, and 
for the five-year period immediately thereafter, be and hereby is 
approved.

IV. Notice of the Standard Maximum Cash Advance Amount

    SIPA requires that the Commission publish the standard maximum cash 
advance amount in the Federal Register no later than April 5 of any 
calendar year in which SIPC is required to determine whether an 
inflation adjustment is appropriate.\16\ Accordingly, pursuant to 
section 9(e)(3)(A) of SIPA, the Commission is hereby providing notice 
that the standard maximum cash advance amount is $250,000 beginning 
January 1, 2017 and for the five-year period immediately thereafter.
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    \16\ 15 U.S.C. 78fff-3(e)(3)(A).

    By the Commission.
Brent J. Fields,
Secretary.
[FR Doc. 2016-07600 Filed 4-1-16; 8:45 am]
 BILLING CODE 8011-01-P