[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proposed bylaw change, which replaced and superseded the original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:
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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/ $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 [email protected]. 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