[Federal Register Volume 85, Number 114 (Friday, June 12, 2020)]
[Notices]
[Pages 35970-35972]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-12735]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. SIPA-181; File No. SIPC-2019-01]


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

June 9, 2020.
    Pursuant to Section 3(e)(1) of the Securities Investor Protection 
Act of 1970 (``SIPA''),\1\ the Securities Investor Protection 
Corporation (``SIPC'') filed with the Securities and Exchange 
Commission (``Commission'') on October 8, 2019 proposed bylaw changes 
relating to the compensation of SIPC's Board of Directors (``SIPC 
Board''). On October 24, 2019, SIPC consented to a 90-day extension of 
time before the proposed bylaw change would take effect pursuant to 
Section

[[Page 35971]]

3(e)(1) of SIPA.\2\ On November 19, 2019, SIPC filed a revised version 
of the proposed bylaw change (the ``proposed bylaw change''). The 
proposed bylaw change replaced and superseded the original filing in 
its entirety. On December 10, 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.\3\ Pursuant to Section 3(e)(1)(B) 
of SIPA, the Commission found that the proposed bylaw change involved a 
matter of such significant public interest that public comment should 
be obtained.\4\ Consequently, pursuant to Section 3(e)(2)(A) of 
SIPA,\5\ notice soliciting comment on the proposed bylaw change was 
published in the Federal Register on January 30, 2020.\6\ On February 
24, 2020, SIPC consented to an extension until May 14, 2020, and on 
April 1, 2020, SIPC consented to an additional extension until June 15, 
2020, for the Commission to approve or institute proceedings to 
determine whether the proposed bylaw change should be disapproved.\7\ 
The Commission received one comment regarding the proposed bylaw 
change.\8\ For the reasons described below, the Commission finds that 
the proposed bylaw change is in the public interest and is consistent 
with the purposes of SIPA.\9\ Therefore, this order approves the 
proposed bylaw change under Section 3(e)(2) of SIPA.\10\
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    \1\ See 15 U.S.C. 78ccc(e)(1).
    \2\ See id.
    \3\ See id.
    \4\ See 15 U.S.C. 78ccc(e)(1)(B).
    \5\ See 15 U.S.C. 78ccc(e)(2)(A).
    \6\ See Securities Investor Protection Corporation; Notice of 
Filing of Proposed Bylaw Change, as Revised by Amendment No. 1, 
Relating to SIPC Board Compensation; Correction, Release No. SIPA-
180A (Jan. 24, 2020), 85 FR 5513 (Jan. 30, 2020) (``Notice'').
    \7\ See 15 U.S.C. 78ccc(e)(2)(B).
    \8\ See Email from Martha C. Chemas, Esq., dated February 5, 
2020 (``Chemas Email''). The comment on the proposed bylaw change is 
available at https://www.sec.gov/comments/sipc-2019-01/sipc201901.htm.
    \9\ See 15 U.S.C. 78ccc(e)(2)(D).
    \10\ See 15 U.S.C. 78ccc(e)(2).
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I. Description of the Proposed Bylaw Change

A. Background

    Under SIPA, the SIPC Board shall consist of seven members: Five 
private sector directors and two public sector directors.\11\ The five 
private sector directors are appointed by the President of the United 
States and confirmed by the Senate. Of the five private sector 
directors, three must be associated with, and representative of, the 
securities industry, and two must not be associated with the securities 
industry. SIPA provides that one of the public sector directors must be 
an officer or employee of the Department of the Treasury and the other 
must be an officer or employee of the Federal Reserve Board. Only 
directors from outside of the securities industry can serve as 
Chairperson and Vice Chairperson of the SIPC Board.
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    \11\ See 15 U.S.C. 78ccc(c).
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    Under SIPA, all matters relating to director compensation are 
governed by the SIPC Bylaws.\12\ The private sector directors are 
entitled to receive an honorarium, which is paid from the SIPC 
Fund.\13\ Since 1994, when the position of Chairperson ceased to be a 
full-time position, the honoraria paid to the private sector directors 
have been increased once (in 2006). The following chart shows the 
honoraria for the Chairperson, Vice Chairperson, and other private 
sector directors from 1994 to 2006 and from 2006 to the present.
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    \12\ See 15 U.S.C. 78ccc(c)(5).
    \13\ All expenditures from SIPC are required to be made out of 
the SIPC Fund. See 15 U.S.C. 78ddd(a)(1).

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        Bylaw date                   Bylaw                Chairperson      Vice chairperson   Industry directors
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1994-2006................  Art. 2, Sec.   6.........  $1,000/meeting,     $500/meeting, $500/ Expenses only.
                                                       $500/day for        day for official
                                                       official business   business +
                                                       + expenses.         expenses.
2006-Present.............  Art. 2, Sec.   6.........  $15,000 honorarium  $6,250 honorarium   $6,250 honorarium
                                                       + expenses.         + expenses.         + expenses.
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B. The Proposed Bylaw Change

    SIPC proposes to modify Section 6 of Article 2 of the SIPC Bylaws 
to: (1) Raise the Chairperson's yearly honorarium from $15,000 to 
$28,000; (2) raise the other private sector directors' yearly 
honorarium from $6,250 to $12,000; (3) authorize a $28,000 yearly 
honorarium for a Vice Chairperson who temporarily serves as acting 
Chairperson for a continuous twelve month period while the position of 
Chairperson remains vacant; and (4) authorize a $28,000 yearly 
honorarium for a private sector director to whom the SIPC Board 
delegates authority to perform certain functions of the Chairperson and 
who performs those functions for a continuous twelve month period while 
the positions of Chairperson and Vice Chairperson remain vacant. SIPC 
justified its proposed bylaw change by describing the enhanced 
responsibilities and risk assumed by members of the SIPC Board. SIPC 
explained the level of time commitment required of directors and noted 
the need to attract and retain qualified directors.\14\
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    \14\ SIPC's full rationale for why the honoraria should be 
increased is set forth in its narrative accompanying the proposed 
bylaw changes. See Notice, 85 FR at 5513-5515.
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    In addition, SIPC explained that the SIPC Board, through its public 
sector directors (who do not receive an honorarium), commissioned Korn/
Ferry International (``Korn/Ferry''), a global management and executive 
consulting firm, to provide recommendations with respect to 
compensation for SIPC Board members.\15\ Independent of the Korn/Ferry 
study, the public sector directors formulated a separate approach to 
the matter, using the per diem pay of a Senior Executive Service 
(``SES'') government employee as a benchmark. Using this measure, the 
public sector directors concluded that the private sector directors 
should receive an honorarium of $12,000 per year. Applying the current 
ratio of Chair versus non-Chair honoraria, the public sector directors 
concluded that the honorarium of the Chair should be $28,000. SIPC 
proposed that the bylaw change, if approved, would take effect six 
months from the date of approval or non-disapproval by the 
Commission.\16\
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    \15\ Based upon a study of director compensation of a peer group 
of 23 organizations comparable 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. By 
comparison, SIPC proposes that: (1) Private directors receive 
$12,000 a year; and (2) the Chair receives an additional amount of 
$14,000 more than other directors.
    \16\ Although the proposed bylaw change references May 6, 2020 
as the date the quarterly installments of the honoraria begin, the 
proposed bylaw change, including the increases in Board honoraria, 
takes effect six months after the Commission's approval.
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II. Comments Received

    The Commission received one comment on the proposed bylaw 
change.\17\ The commenter--an individual--supported it.
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    \17\ See Chemas Email.

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[[Page 35972]]

III. Commission Findings

    Section 3(e) of SIPA sets forth the procedures for addressing 
proposed SIPC rules and bylaws.\18\ Pursuant to Section 3(e)(1)(B) of 
SIPA, the Commission found that the proposed bylaw changes involved a 
matter of such significant public interest that public comment should 
be obtained and required that the procedures applicable to SIPC 
proposed rule changes in section 3(e)(2) of SIPA be followed.\19\ 
Section 3(e)(2) of SIPA sets forth the procedures for proposed rule 
changes and provides that the Commission shall approve a proposed rule 
change if it finds the change is in the public interest and is 
consistent with the purposes of SIPA. As discussed below, the 
Commission finds, pursuant to Section 3(e)(2)(D) of SIPA, that the 
proposed bylaw change is in the public interest and consistent with the 
purposes of SIPA.\20\
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    \18\ See 15 U.S.C. 78ccc(e).
    \19\ See Notice, 85 FR 5513.
    \20\ See 15 U.S.C. 78ccc(e)(2)(D).
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    As noted above, the SIPC Board's honoraria have not increased since 
2006. However, SIPC states that the responsibility of the SIPC Board 
members has increased since the 2008 financial crisis. For example, 
since 2006, SIPC has been responsible for three major SIPA 
liquidations: Bernard L. Madoff Investment Securities LLC; Lehman 
Brothers, Inc.; and MF Global Inc. Moreover, Congress designated SIPC 
to serve as trustee in the orderly liquidation of certain systemically 
important broker-dealers in the Dodd-Frank Wall Street Reform and 
Customer Protection Act of 2010.\21\ SIPC reports that these additional 
responsibilities have coincided with an increase in the time commitment 
for the role, including travel to attend SIPC Board meetings. In 
addition, SIPC Board members have been sued in their capacity as Board 
members.\22\ Finally, the Commission believes it is important to SIPC's 
customer protection mission to recruit well-qualified individuals to 
serve on the SIPC Board. SIPC directors should serve the public 
interest and carry out its mission of protecting investors.
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    \21\ See 12 U.S.C. 5385(a)(1).
    \22\ See, e.g., Canavan v. Harbeck, Case No. 2:10-cv-00954-FSH-
PS (D.N.J. 2010).
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    The Commission also believes that the proposed increases in the 
honoraria are reasonable. In particular, the amount of the proposed 
honoraria for the private sector directors that do not serve as Chair 
($12,000 annually) is in line with the maximum compensation paid to an 
SES government employee, after pro rating for the estimated number of 
days worked per year.\23\ Using the SES government employee salary as a 
benchmark is appropriate given the similarity in the seniority and 
public mission of both SES government employees and SIPC Board members. 
The proposed increase in the Chairperson's, acting Chairperson's, or 
the SIPC Board-delegated Chairperson's honorarium from $15,000 to 
$28,000 maintains the same approximate ratio between the current 
private sector directors' honoraria and that of the Chairperson, acting 
Chairperson, or the SIPC Board-delegated Chairperson.
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    \23\ The maximum SES salary in 2019 was $192,300. See Salary 
Table No. 2019-ES: Rates of Basic Pay for Members of the Senior 
Executive Service (SES), available at https://www.opm.gov/policy-data-oversight/pay-leave/salaries-wages/salary-tables/pdf/2019/ES.pdf (effective January 2019). When pro rating that salary for 16 
days of service a year on the SIPC Board, the equivalent amount 
earned equals $12,307 (i.e., $192,300 * 16 days/250-day work year). 
Therefore, the proposed honoraria of $12,000 approximates a pro-
rated version the current maximum SES salary.
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    For these reasons, the Commission finds, pursuant to Section 
3(e)(2)(D) of SIPA, that it is in the public interest and is consistent 
with the purposes of SIPA to increase the honoraria of the private 
sector directors to account for the increased responsibilities and time 
commitments associated with the positions and the potential legal risk 
the private sector directors face, as well as to provide an incentive 
to recruit well-qualified directors.\24\
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    \24\ See 15 U.S.C. 78ccc(e)(2)(D).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 3(e)(2) of SIPA, that 
the proposed bylaw change (SIPA 2019-01) is approved.\25\
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    \25\ See 15 U.S.C. 78ccc(e)(2).

    By the Commission.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-12735 Filed 6-11-20; 8:45 am]
BILLING CODE 8011-01-P