Covered Broker-Dealer Provisions Under Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act, 10798-10820 [2016-03874]

Download as PDF 10798 Federal Register / Vol. 81, No. 41 / Wednesday, March 2, 2016 / Proposed Rules TABLE V—ASME CODE CASES PROPOSED FOR NRC APPROVAL—Continued Code Case No. Supplement Title OMN–18 .......................................... 2012 Edition ................................... OMN–19 .......................................... OMN–20 .......................................... 2012 Edition ................................... 2012 Edition ................................... Alternate Testing Requirements for Pumps Tested Quarterly Within ±20% of Design Flow. Alternative Upper Limit for the Comprehensive Pump Test. Inservice Test Frequency. 7 Code Case published in Supplement 1 to the 2013 Edition; included at the request of ASME. Case published in Supplement 3 to the 2013 Edition; included at the request of ASME. 9 Code Case published in Supplement 6 to the 2013 Edition; included at the request of ASME. 8 Code List of Subjects in 10 CFR Part 50 Administrative practice and procedure, Antitrust, Classified information, Criminal penalties, Education, Fire prevention, Fire protection, Incorporation by reference, Intergovernmental relations, Nuclear power plants and reactors, Penalties, Radiation protection, Reactor siting criteria, Reporting and recordkeeping requirements, Whistleblowing. For the reasons set out in the preamble and under the authority of the Atomic Energy Act of 1954, as amended; the Energy Reorganization Act of 1974, as amended; and 5 U.S.C. 552 and 553, the NRC is proposing to adopt the following amendments to 10 CFR part 50. 1.147, ‘‘Inservice Inspection Code Case Acceptability, ASME Section XI, Division 1,’’ Revision 18, dated [DATE OF FINAL RULE PUBLICATION IN THE Federal Register], which lists ASME Code Cases that the NRC has approved in accordance with the requirements in paragraph (b)(5) of this section. (iii) NRC Regulatory Guide 1.192, Revision 2. NRC Regulatory Guide 1.192, ‘‘Operation and Maintenance Code Case Acceptability, ASME OM Code,’’ Revision 2, dated [DATE OF FINAL RULE PUBLICATION IN THE Federal Register], which lists ASME Code Cases that the NRC has approved in accordance with the requirements in paragraph (b)(6) of this section. * * * * * PART 50—DOMESTIC LICENSING OF PRODUCTION AND UTILIZATION FACILITIES Dated at Rockville, Maryland, this 5th day of February, 2016. For the Nuclear Regulatory Commission. William M. Dean, Director, Office of Nuclear Reactor Regulation. 1. The authority citation for part 50 continues to read as follows: ■ Authority: Atomic Energy Act of 1954, secs. 11, 101, 102, 103, 104, 105, 108, 122, 147, 149, 161, 181, 182, 183, 184, 185, 186, 187, 189, 223, 234 (42 U.S.C. 2014, 2131, 2132, 2133, 2134, 2135, 2138, 2152, 2167, 2169, 2201, 2231, 2232, 2233, 2234, 2235, 2236, 2237, 2239, 2273, 2282); Energy Reorganization Act of 1974, secs. 201, 202, 206, 211 (42 U.S.C. 5841, 5842, 5846, 5851); Nuclear Waste Policy Act of 1982, sec. 306 (42 U.S.C. 10226); National Environmental Policy Act of 1969 (42 U.S.C. 4332); 44 U.S.C. 3504 note; Sec. 109, Pub. L. 96–295, 94 Stat. 783. [FR Doc. 2016–04355 Filed 3–1–16; 8:45 am] BILLING CODE 7590–01–P FEDERAL DEPOSIT INSURANCE CORPORATION 12 CFR Part 380 RIN 3064–AE39 SECURITIES AND EXCHANGE COMMISSION 2. In § 50.55a, revise paragraph (a)(3)(i) through (iii) to read as follows: 17 CFR Part 302 § 50.55a RIN 3235–AL51 jstallworth on DSK7TPTVN1PROD with PROPOSALS ■ Codes and standards. (a) * * * (3) * * * (i) NRC Regulatory Guide 1.84, Revision 37. NRC Regulatory Guide 1.84, ‘‘Design, Fabrication, and Materials Code Case Acceptability, ASME Section III,’’ Revision 37, dated [DATE OF FINAL RULE PUBLICATION IN THE Federal Register], with the requirements in paragraph (b)(4) of this section. (ii) NRC Regulatory Guide 1.147, Revision 18. NRC Regulatory Guide VerDate Sep<11>2014 13:19 Mar 01, 2016 Jkt 238001 [Release No. 34–77157; File No. S7–02–16] Covered Broker-Dealer Provisions Under Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act Federal Deposit Insurance Corporation (‘‘FDIC’’ or ‘‘Corporation’’); Securities and Exchange Commission (‘‘SEC’’ or ‘‘Commission’’ and, collectively with the FDIC, the ‘‘Agencies’’). AGENCY: PO 00000 Frm 00019 Fmt 4702 Sfmt 4702 ACTION: Notice of proposed rulemaking. The Agencies, in accordance with section 205(h) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (‘‘Dodd-Frank Act’’), are jointly proposing a rule to implement provisions applicable to the orderly liquidation of covered brokers and dealers under Title II of the Dodd-Frank Act (‘‘Title II’’). DATES: Comments should be received on or before May 2, 2016. ADDRESSES: Comments may be submitted by any of the following methods: SUMMARY: FDIC • FDIC Web site: https://www.fdic.gov/ regulations/laws/federal. Follow instructions for submitting comments on the FDIC Web site. • FDIC email: Comments@FDIC.gov. Include ‘‘RIN 3064–AE39’’ in the subject line of the message. • FDIC mail: Robert E. Feldman, Executive Secretary, Attention: Comments, Federal Deposit Insurance Corporation, 550 17th Street NW., Washington, DC 20429. • Hand delivery/courier: Guard station at the rear of the 550 17th Street Building (located on F Street) on business days between 7 a.m. and 5 p.m. (Eastern Time). • Federal eRulemaking portal: https:// www.regulations.gov. Follow the instructions for submitting comments. • Public inspection: All comments received will be posted without change to https://www.fdic.gov/regulations/laws/ federal including any personal information provided. Paper copies of public comments may be ordered from the Public Information Center by telephone at (877) 275–3342 or (703) 562–2200. SEC Electronic Comments • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/proposed.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number S7– 02–16 on the subject line; or E:\FR\FM\02MRP1.SGM 02MRP1 Federal Register / Vol. 81, No. 41 / Wednesday, March 2, 2016 / Proposed Rules • Use the Federal eRulemaking Portal (https://www.regulations.gov). Follow the instructions for submitting comments. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number S7–02–16. This file number should be included on the subject line if email is used. 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 Web site (https://www.sec.gov/rules/ proposed.shtml). Comments also are 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 publicly available. Studies, memoranda or other substantive items may be added by the Commission or staff to the comment file during this rulemaking. A notification of the inclusion in the comment file of any such materials will be made available on the Commission’s Web site. To ensure direct electronic receipt of such notifications, sign up through the ‘‘Stay Connected’’ option at www.sec.gov to receive notifications by email. FOR FURTHER INFORMATION CONTACT: FDIC Peter Miller, Assistant Director, Division of Resolutions and Receiverships, at (917) 320–2589; John Oravec, Senior Resolution Advisor, Office of Complex Financial Institutions, at (202) 898–6612; Elizabeth Falloon, Supervisory Counsel, Legal Division, at (703) 562–6148; Pauline Calande, Senior Counsel, Legal Division, at (202) 898–6744. jstallworth on DSK7TPTVN1PROD with PROPOSALS SEC Thomas K. McGowan, Associate Director, at (202) 551–5521; Randall W. Roy, Deputy Associate Director, at (202) 551–5522; Raymond A. Lombardo, Branch Chief, at (202) 551–5755; Jane D. Wetterau, Attorney Advisor, at (202) 551–4483, Division of Trading and Markets, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–7010. SUPPLEMENTARY INFORMATION: VerDate Sep<11>2014 13:19 Mar 01, 2016 Jkt 238001 I. Background II. Proposed Rule A. Definitions 1. Definitions Relating to Covered BrokerDealers 2. Additional Definitions B. Appointment of Receiver and Trustee for Covered Broker-Dealer C. Notice and Application for Protective Decree for Covered Broker-Dealer D. Bridge Broker-Dealer 1. Power To Establish Bridge BrokerDealer; Transfer of Customer Accounts and Other Assets and Liabilities 2. Other Provisions With Respect to Bridge Broker-Dealer E. Claims of Customers and Other Creditors of a Covered Broker-Dealer F. Additional Proposed Sections III. Requests for Comments A. In General B. Requests for Comment on Certain Specific Matters IV. Paperwork Reduction Act V. Economic Analysis A. Introduction and General Economic Considerations B. Economic Baseline 1. SIPC’s Role 2. The Corporation’s Power To Establish Bridge Broker-Dealers 3. Satisfaction of Customer Claims C. Benefits, Costs and Effects on Efficiency, Competition, and Capital Formation 1. Anticipated Benefits 2. Anticipated Costs 3. Effects on Efficiency, Competition, and Capital Formation D. Alternatives Considered E. Request for Comment VI. Regulatory Analysis and Procedures A. Regulatory Flexibility Act Analysis B. The Treasury and General Government Appropriations Act, 1999—Assessment of Federal Regulations and Policies on Families C. Plain Language VII. Consideration of Impact on the Economy VIII. Statutory Authority I. Background Title II of the Dodd-Frank Act 1 provides an alternative insolvency regime for the orderly liquidation of large financial companies that meet specified criteria.2 Section 205 of Title II sets forth certain provisions specific to the orderly liquidation of certain large broker-dealers, and paragraph (h) of section 205 requires the Agencies, in consultation with the Securities Investor Protection Corporation (‘‘SIPC’’), jointly to issue rules to implement section 205.3 In the case of a broker-dealer, or in which the largest U.S. subsidiary of a 1 Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, Public Law 111–203, 124 Stat. 1376 (2010) and codified at 12 U.S.C. 5301 et seq. Title II of the Dodd-Frank Act is codified at 12 U.S.C. 5381–5394. 2 See 12 U.S.C. 5384 (pertaining to the orderly liquidation of covered financial companies). 3 See 12 U.S.C. 5385 (pertaining to the orderly liquidation of covered broker-dealers). PO 00000 Frm 00020 Fmt 4702 Sfmt 4702 10799 financial company 4 is a broker-dealer, the Board of Governors of the Federal Reserve (‘‘Board’’) and the Commission are authorized jointly to issue a written orderly liquidation recommendation to the U.S. Treasury Secretary (‘‘Secretary’’). The FDIC must be consulted in such a case. The recommendation, which may be sua sponte or at the request of the Secretary, must contain a discussion regarding eight criteria enumerated in section 203(a)(2) 5 and be approved by a vote of not fewer than a two-thirds majority of each agency’s governing body then serving.6 Based on similar but not identical criteria enumerated in section 203(b), the Secretary would consider the recommendation and (in consultation with the President) determine whether the financial company poses a systemic risk meriting liquidation under Title II.7 Title II also provides that in any case in which the Corporation is appointed receiver for a covered financial company,8 the Corporation may appoint itself as receiver for any covered subsidiary 9 if the Corporation and the Secretary make the requisite joint determination specified in section 210.10 A company that is the subject of an affirmative section 203(b) or section 210(a)(1)(E) determination would be considered a covered financial company for purposes of Title II.11 As discussed below, a covered broker or dealer is a covered financial company that is registered with the Commission as a broker or dealer and is a member of SIPC.12 Irrespective of how the brokerdealer was placed into a Title II resolution, section 205 regarding the liquidation of covered broker-dealers and the proposed rule (if adopted) would always apply to the broker-dealer even if section 210 is invoked.13 Upon a determination under section 203 or section 210, a covered financial 4 Section 201(a)(11) of the Dodd-Frank Act (12 U.S.C. 5381(a)(11)) (defining financial company). 5 See 12 U.S.C. 5383(a)(2)(A) through (G). 6 See 12 U.S.C. 5383(a)(1)(B) (pertaining to vote required in cases involving broker-dealers). 7 See 12 U.S.C. 5383(b) (pertaining to a determination by the Secretary). 8 See 12 U.S.C. 5381(a)(8) (definition of covered financial company). 9 See 12 U.S.C. 5381(a)(9) (definition of covered subsidiary). A covered subsidiary of a covered financial company could include a broker-dealer. 10 See 12 U.S.C. 5390(a)(1)(e). 11 See 12 U.S.C. 5381(a)(8) (definition of covered financial company); 12 U.S.C. 5390(a)(1)(E)(ii) (treatment as covered financial company). 12 See 12 U.S.C. 5381(a)(7) (definition of covered broker or dealer). For convenience, we hereinafter refer to entities that meet this definition as covered broker-dealers. 13 See 12 U.S.C. 5390(a)(1)(E). E:\FR\FM\02MRP1.SGM 02MRP1 10800 Federal Register / Vol. 81, No. 41 / Wednesday, March 2, 2016 / Proposed Rules jstallworth on DSK7TPTVN1PROD with PROPOSALS company would be placed into an orderly liquidation proceeding and the FDIC would be appointed receiver.14 In the case of a covered broker-dealer, the FDIC would appoint SIPC as trustee for the covered broker-dealer.15 Although the statute refers to the appointment of SIPC as trustee for the ‘‘liquidation of the covered broker-dealer under [the Securities Investor Protection Act (‘‘SIPA’’)]’’,16 the proposed rule simply refers to SIPC as trustee for the covered broker-dealer since the Title II receivership is not a liquidation of the covered broker-dealer under SIPA, but rather an orderly liquidation of the broker-dealer under Title II that incorporates the customer protection provisions of SIPA. The FDIC could utilize a bridge financial company, a bridge broker-dealer,17 as a means to liquidate the covered broker-dealer, transferring customer accounts and associated customer name securities and customer property to such bridge financial company.18 In the event that a bridge broker-dealer were created, SIPC, as trustee under SIPA for the covered broker-dealer, would determine claims and distribute assets retained in the receivership of the covered brokerdealer in a manner consistent with SIPA.19 The transfer of customer property, and advances from SIPC, made to the bridge broker-dealer and allocated to a customer’s account at the bridge broker-dealer would satisfy a customer’s net equity claims against the covered broker-dealer to the extent of the value, as of the appointment date, of such allocated property. SIPC would have no powers or duties with respect to assets and liabilities of the bridge broker-dealer.20 This rulemaking clarifies for purposes of section 205(h): 21 How the customer protections of SIPA will be integrated with the other provisions of Title II; the roles of the Corporation as receiver and SIPC as trustee for a covered broker-dealer; and the administration of claims in an 14 See 12 U.S.C. 5384 (pertaining to orderly liquidation of covered financial companies). 15 See 12 U.S.C. 5385(a) (appointment of SIPC as trustee for the liquidation). 16 12 U.S.C. 5385(a)(1). 17 See Section II.A.2 below for a definition of bridge broker or dealer. For convenience, we hereinafter refer to entities that meet that definition as bridge broker-dealers. 18 See 12 U.S.C. 5390(h)(2)(H) (pertaining to the Corporation’s authority to organize bridge financial companies). See also infra section II.D.2 (describing the process of transferring accounts to the bridge broker-dealer). 19 See 12 U.S.C. 5385(a)(2)(B) (pertaining to the administration by SIPC of assets of the covered broker-dealer not transferred to a bridge brokerdealer). 20 12 U.S.C. 5385(b)(1). 21 12 U.S.C. 5385(f). VerDate Sep<11>2014 13:19 Mar 01, 2016 Jkt 238001 orderly liquidation of a covered brokerdealer. II. Proposed Rule A. Definitions 22 The proposed definitions section would define certain key terms. Consistent with the remainder of the proposed rule, the definitions are designed to help ensure that, as the statute requires, net equity claims of customers against a covered brokerdealer are determined and satisfied in a manner and amount that is at least as beneficial to customers as would have been the case had the covered brokerdealer been liquidated under SIPA without the appointment of the FDIC as receiver and without any transfer of assets or liabilities to a bridge financial company, and with a filing date as of the date on which the FDIC was appointed as receiver.23 To effectuate the statutory requirement, the definitions in the proposed rule are very similar or identical to the corresponding definitions in SIPA and Title II of the Dodd-Frank Act, and where they differ, it is for purposes of clarity only and not to change or modify the meaning of the definitions under either Act. 1. Definitions Relating to Covered Broker-Dealers The term covered broker or dealer would be defined as ‘‘a covered financial company that is a qualified broker or dealer.’’ 24 Pursuant to section 201(a)(10) of the Dodd-Frank Act, the terms customer, customer name securities, customer property, and net equity in the context of a covered broker-dealer will have the same meaning as the corresponding terms in section 16 of SIPA.25 Section 16(2)(A) of SIPA defines customer of a debtor, in pertinent part, as any person (including any person with whom the debtor deals as principal or agent) who has a claim on account of securities received, acquired, or held by the debtor in the ordinary course of its business as a broker or dealer from or for the securities accounts of such person for safekeeping, with a view to sale, to cover consummated sales, 22 If adopted, the definitions section would appear in 12 CFR 380.60 for purposes of the Corporation and 17 CFR 302.100 for purposes of the Commission. 23 See 12 U.S.C. 5385(f)(1) (pertaining to obligations to customers) and 12 U.S.C. 5385(d)(1)(A) through (C) (limiting certain actions of the Corporation that would adversely affect, diminish or otherwise impair certain customer rights). 24 See §§ 380.60(d) and 302.100(d), as proposed. See also 12 U.S.C. 5381(a)(7). 25 12 U.S.C. 5381(a)(10). See also 15 U.S.C. 78lll and §§ 380.60 and 302.100, as proposed. PO 00000 Frm 00021 Fmt 4702 Sfmt 4702 pursuant to purchases, as collateral, security, or for purposes of effecting transfer.26 Section 16(3) of SIPA defines customer name securities as securities which were held for the account of a customer on the filing date by or on behalf of the debtor and which on the filing date were registered in the name of the customer, or were in the process of being so registered pursuant to instructions from the debtor, but does not include securities registered in the name of the customer which, by endorsement or otherwise, were in negotiable form.27 Section 16(4) of SIPA defines customer property, in pertinent part, as cash and securities (except customer name securities delivered to the customer) at any time received, acquired, or held by or for the account of a debtor from or for the securities accounts of a customer, and the proceeds of any such property transferred by the debtor, including property unlawfully converted.28 Section (16)(11) of SIPA defines net equity as the dollar amount of the account or accounts of a customer, to be determined by: 1. Calculating the sum which would have been owed by the debtor to such customer if the debtor had liquidated, by sale or purchase on the filing date— a. All securities positions of such customer (other than customer name securities reclaimed by such customer); and b. All positions in futures contracts and options on futures contracts held in a portfolio margining account carried as a securities account pursuant to a portfolio margining program approved by the Commission, including all property collateralizing such positions, to the extent that such property is not otherwise included herein; minus 2. Any indebtedness of such customer to the debtor on the filing date; plus 3. Any payment by such customer of such indebtedness to the debtor which is made with the approval of the trustee and within such period as the trustee may determine (but in no event more than sixty days after the publication of notice under section (8)(a) [of SIPA]).29 The proposed definition of appointment date is the date of the appointment of the Corporation as receiver for a covered financial company that is a covered broker or 26 15 U.S.C. 78lll(2)(A). See also §§ 380.60(e) and 302.100(e), as proposed. 27 15 U.S.C. 78lll(3). See also §§ 380.60(f) and 302.100(f), as proposed. 28 15 U.S.C. 78lll(4). See also §§ 380.60(g) and 302.100(g), as proposed. 29 15 U.S.C. 78lll(11) (emphasis added). See also §§ 380.60(h) and 302.100(h), as proposed. E:\FR\FM\02MRP1.SGM 02MRP1 Federal Register / Vol. 81, No. 41 / Wednesday, March 2, 2016 / Proposed Rules dealer.30 The appointment date would constitute the filing date as that term is used under SIPA 31 and, like the filing date under SIPA, is the reference date for the computation of net equity.32 2. Additional Definitions In addition to the definitions relating to covered broker-dealers under section 201(a)(10) of the Dodd-Frank Act,33 the Agencies also propose to define the following terms: (1) bridge broker or dealer; 34 (2) Commission; 35 (3) qualified broker or dealer; 36 (4) SIPA 37 and (5) SIPC. 38 The term bridge broker or dealer would be defined as a new financial company organized by the Corporation in accordance with section 210(h) of the Dodd-Frank Act for the purpose of resolving a covered broker or dealer.39 The term Commission would be defined as the Securities and Exchange Commission.40 The term qualified broker or dealer would refer to a broker or dealer that (A) is registered with the Commission under section 15(b) of the Securities Exchange Act of 1934 (15 U.S.C. 78o(b)); and (B) is a member of SIPC, but is not itself subject to a Title II receivership.41 This definition is consistent with the statutory definition but is abbreviated for clarity. It is not intended to change or modify the statutory definition. The term SIPA would refer to the Securities Investor Protection Act of 1970, 15 U.S.C. 78aaa– lll.42 The term SIPC would refer to the Securities Investor Protection Corporation.43 B. Appointment of Receiver and Trustee for Covered Broker-Dealer 44 Upon the FDIC’s appointment as receiver for a covered broker-dealer, 30 See §§ 380.60(a) and 302.100(a), as proposed. §§ 380.60(a) and 302.100(a), as proposed. 32 See §§ 380.60(a) and 302.100(a), as proposed. See also 12 U.S.C. 5385(a)(2)(C) and 15 U.S.C. 78lll(7). 33 See 12 U.S.C. 5381(a)(10). 34 See §§ 380.60(b) and 302.100(b), as proposed. 35 See §§ 380.60(c) and 302.100(c), as proposed. 36 See §§ 380.60(i) and 302.100(i), as proposed. 37 See §§ 380.60(j) and 302.100(j), as proposed. 38 See §§ 380.60(k) and 302.100(k), as proposed. 39 See §§ 380.60(b) and 302.100(b), as proposed. See also 15 U.S.C. 5390(h)(2)(H) (setting forth that the FDIC, as receiver for a covered broker or dealer, may approve articles of association for one or more bridge financial companies with respect to such covered broker or dealer). 40 See §§ 380.60(c) and 302.100(c), as proposed. 41 See §§ 380.60(i) and 302.100(i), as proposed. 42 See §§ 380.60(j) and 302.100(j), as proposed. 43 See §§ 380.60(k) and 302.100(k), as proposed. 44 If adopted, the section about the appointment of receiver and trustee for covered broker-dealers would appear in 12 CFR 380.61 for purposes of the Corporation and 17 CFR 302.101 for purposes of the Commission. The rule text in both CFRs will be identical. jstallworth on DSK7TPTVN1PROD with PROPOSALS 31 See VerDate Sep<11>2014 13:19 Mar 01, 2016 Jkt 238001 section 205 of the Dodd-Frank Act specifies that the Corporation shall appoint SIPC to act as trustee for the liquidation under SIPA of the covered broker-dealer.45 The proposed rule deviates from the statutory language in some cases to clarify the orderly liquidation process. For example, the proposed rule would make it clear that SIPC is to be appointed as trustee for the covered broker-dealer but deletes the phrase ‘‘for the liquidation under SIPA’’ since in reality there is no proceeding under SIPA and the covered brokerdealer is being liquidated under Title II. Section 205 of the Dodd-Frank Act also states that court approval is not required for such appointment.46 For ease and clarity, the proposed rule would incorporate these statutory roles which are further explained in other sections of the proposed rule.47 C. Notice and Application for Protective Decree for Covered Broker-Dealer 48 Upon the appointment of SIPC as trustee for the covered broker-dealer, Title II requires SIPC, as trustee, promptly to file an application for a protective decree with a federal district court, and SIPC and the Corporation, in consultation with the Commission, jointly to determine the terms of the protective decree to be filed.49 Although a SIPA proceeding is conducted under bankruptcy court supervision,50 a Title II proceeding is conducted entirely outside of the bankruptcy courts, through an administrative process, with the FDIC acting as receiver.51 As a result, a primary purpose of filing a notice and application for a protective decree is to give notice to interested parties that an orderly liquidation proceeding has been initiated. The proposed rule on notice and application for protective decree provides additional clarification of the statutory requirement by setting forth the venue in which the notice and application for a protective decree is to be filed. It states that a notice and application for a protective decree is to be filed with the federal district court in which a liquidation of the covered broker-dealer 45 See 12 U.S.C. 5385(a)(1). §§ 380.62(a) and 302.102(a), as proposed. 12 U.S.C. 5385(a)(2)(A) (specifying the federal district courts in which the application for a protective decree may be filed). 54 See 12 U.S.C. 5390(a)(4)(A) (a claimant may file suit in the district or territorial court for the district within which the principal place of business of the covered financial company is located). 55 See §§ 380.62(a) and 302.102(a), as proposed. 56 See §§ 380.62(b) and 302.102(b), as proposed. 57 See §§ 380.62(b)(2)(i) and 302.102(b)(2)(i), as proposed. See also 12 U.S.C. 5388(a) (regarding dismissal of any case or proceeding relating to a covered broker-dealer under the Bankruptcy Code 53 See 47 See §§ 380.61 and 302.101, as proposed. adopted, the notice and application for protective decree for the covered broker-dealer section will appear in 12 CFR 380.62 for purposes of the FDIC and 17 CFR 302.102 for purposes of the Commission. 49 See 12 U.S.C. 5385(b)(3) (pertaining to the filing of a protective decree by SIPC). 50 See 15 U.S.C. 78eee(b). 51 See 15 U.S.C. 5388 (requiring the dismissal of all other bankruptcy or insolvency proceedings upon the appointment of the Corporation as receiver for a covered financial company). 48 If Frm 00022 under SIPA is pending, or if no such SIPA liquidation is pending, the federal district court for the district within which the covered broker-dealer’s principal place of business is located.52 This court is a federal district court of competent jurisdiction specified in section 21 or 27 of the Exchange Act, 15 U.S.C. 78u, 78aa.53 It also is the court with jurisdiction over suits seeking de novo judicial claims determinations under section 210(a)(4)(A) of the DoddFrank Act.54 While the statute grants authority to file the notice and application for a protective decree in any federal court of competent jurisdiction specified in section 21 or 27 or the Securities Exchange Act of 1934, the proposed rule restricts the filing to the courts specified above in order to make it easier for interested parties to know where the protective decree might be filed. The proposed rule also clarifies that if the notice and application for a protective decree is filed on a date other than the appointment date, the filing shall be deemed to have occurred on the appointment date for purposes of the rule.55 This proposed section of the rule governing the notice and application for a protective decree would also include a non-exclusive list of notices drawn from other parts of Title II.56 The goal would be to inform interested parties that the covered broker-dealer is in orderly liquidation, and to highlight the application of certain provisions of the orderly liquidation authority particularly with respect to applicable stays and other matters that might be addressed in a protective decree issued under SIPA. A notice and application for a protective decree under Title II may, among other things, provide for notice: (1) That any existing case or proceeding under the Bankruptcy Code or SIPA would be dismissed, effective as of the appointment date, and no such case or proceeding may be commenced with respect to a covered broker-dealer at any time while the Corporation is the receiver for such covered brokerdealer; 57 (2) of the revesting of assets, 52 See 46 Id. PO 00000 10801 Fmt 4702 Sfmt 4702 E:\FR\FM\02MRP1.SGM Continued 02MRP1 10802 Federal Register / Vol. 81, No. 41 / Wednesday, March 2, 2016 / Proposed Rules jstallworth on DSK7TPTVN1PROD with PROPOSALS with certain exceptions, in a covered broker-dealer to the extent that they have vested in any entity other than the covered broker-dealer as a result of any case or proceeding commenced with respect to the covered broker-dealer under the Bankruptcy Code, SIPA, or any similar provision of state liquidation or insolvency law applicable to the covered broker-dealer; 58 (3) of the request of the Corporation as receiver for a stay in any judicial action or proceeding in which the covered brokerdealer is or becomes a party for a period of up to 90 days from the appointment date; 59 (4) that except with respect to qualified financial contracts (‘‘QFCs’’),60 no person may exercise any right or power to terminate, accelerate, or declare a default under any contract to which the covered broker-dealer is a party or to obtain possession of or exercise control over any property of the covered broker-dealer or affect any contractual rights of the covered brokerdealer without the consent of the FDIC as receiver of the covered broker-dealer upon consultation with SIPC during the 90-day period beginning from the appointment date 61; and (5) that the exercise of rights and the performance of obligations by parties to QFCs with the covered broker-dealer may be affected, stayed, or delayed pursuant to the provisions of Title II (including but not limited to 12 U.S.C. 5390(c)) and the regulations promulgated thereunder.62 or SIPA on the appointment of the Corporation as receiver and notice to the court and SIPA). 58 See §§ 380.62(b)(2)(ii) and 302.102(b)(2)(ii), as proposed. See also 12 U.S.C. 5388(b) (providing that the notice and application for a protective decree may also specify that any revesting of assets in a covered broker or dealer to the extent that they have vested in any other entity as a result of any case or proceeding commenced with respect to the covered broker or dealer under the Bankruptcy Code, SIPA, or any similar provision of State liquidation or insolvency law applicable to the covered broker or dealer shall not apply to assets of the covered broker or dealer, including customer property, transferred pursuant to an order entered by a bankruptcy court). 59 See §§ 380.62(b)(2)(iii) and 302.102(b)(2)(iii), as proposed. See also 12 U.S.C. 5390(a)(8) (providing for the temporary suspension of legal actions upon request of the Corporation). 60 See 12 U.S.C. 5390(c)(8)(D) (defining qualified financial contract as ‘‘any securities contract, commodity contract, forward contract, repurchase agreement, swap agreement, and any similar agreement that the Corporation determines by regulation, resolution, or order to be a qualified financial contract for purposes of this paragraph’’). 61 12 U.S.C. 5390(c)(13)(C)(i). 62 See §§ 380.62(b)(2)(iv) and 302.102(b)(2)(iv), as proposed. See also 12 U.S.C. 5390(c)(8)(F) (rendering unenforceable all QFC walkaway clauses (as defined in 12 U.S.C. 5390(c)(8)(F)(iii)) including those provisions that suspend, condition, or extinguish a payment obligation of a party because of the insolvency of a covered financial company or the appointment of the FDIC as receiver) and 12 U.S.C. 5390(c)(10)(B)(i) (providing that in the case VerDate Sep<11>2014 19:47 Mar 01, 2016 Jkt 238001 The proposed rule makes clear that the matters listed for inclusion in the notice and application for a protective decree are neither mandatory nor allinclusive. The items listed are those that the Agencies believe might provide useful guidance to customers and other parties who may be less familiar with the Title II process than with a SIPA proceeding. It is worth noting that the language relating to QFCs is rather general. In certain circumstances it may be worthwhile specifically to highlight the one-day stay provisions in section 210(c)(10) of the Dodd-Frank Act, the provisions relating to the enforcement of affiliate contracts under section 210(c)(16) of the Dodd-Frank Act, and other specific provisions relating to QFCs or other contracts. D. Bridge Broker-Dealer 63 1. Power To Establish Bridge BrokerDealer; Transfer of Customer Accounts and Other Assets and Liabilities Section 210 of the Dodd-Frank Act sets forth the Corporation’s powers as receiver of a covered financial company.64 One such power the Corporation has, as receiver, is the power to form bridge financial companies.65 Paragraph (a) of this section of the proposed rule states that the Corporation as receiver for a covered broker-dealer, or in anticipation of being appointed receiver for a covered brokerdealer, may organize one or more bridge broker-dealers with respect to a covered broker-dealer.66 Paragraph (b) of this section of the proposed rule states that if the Corporation were to establish one or more bridge broker-dealers with respect to a covered broker-dealer, then the Corporation as receiver for such covered broker-dealer shall transfer all of a QFC, a person who is a party to a QFC with a covered financial company may not exercise any right that such person has to terminate, liquidate, or net such contract solely by reason of or incidental to the appointment of the FDIC as receiver (or the insolvency or financial condition of the covered financial company for which the FDIC has been appointed as receiver) —until 5:00 p.m. (eastern time) on the business day following the appointment, or after the person has received notice that the contract has been transferred pursuant to 12 U.S.C. 5390(c)(9)(A)). 63 If adopted, the bridge broker or dealer section will appear in 12 CFR 380.63 for purposes of the Corporation and 17 CFR 302.103 for purposes of the Commission. 64 12 U.S.C. 5390. 65 See 12 U.S.C. 5390(h)(1)(A) (granting general power to form bridge financial companies). See also 12 U.S.C. 5390(h)(2)(H)(i) (granting authority to organize one or more bridge financial companies with respect to a covered broker-dealer). 66 See §§ 380.63 and 302.103, as proposed. See also 12 U.S.C. 5390(h)(2)(H) (granting the Corporation as receiver authority to organize one or more bridge financial companies with respect to a covered broker-dealer). PO 00000 Frm 00023 Fmt 4702 Sfmt 4702 customer accounts and all associated customer name securities and customer property to such bridge broker[s]dealer[s] unless the Corporation, after consultation with the Commission and SIPC, determines that: (1) The transfer of such customer accounts, customer name securities, and customer property to one or more qualified broker-dealers will occur promptly such that the use of the bridge broker[s]-dealer[s] would not facilitate such transfer to one or more qualified broker-dealers; or (2) the transfer of such customer accounts to the bridge broker[s]-dealer[s] would materially interfere with the ability of the FDIC to avoid or mitigate serious adverse effects on financial stability or economic conditions in the United States.67 The two conditions in paragraph (b) of the proposed rule are contained in Title II and are provided in the proposed rule for ease and clarity and to make it clear the transfer to a bridge broker-dealer will take place unless a transfer to a qualified brokerdealer is imminent.68 The use of the word ‘‘promptly’’ in the proposed rule, in this context, is intended to emphasize the urgency of transferring customer accounts, customer name securities, and customer property either to a qualified broker-dealer or to a bridge brokerdealer as soon as practicable to allow customers the earliest possible access to their accounts. Paragraph (c) of this section of the proposed rule states that the Corporation as receiver for the covered broker-dealer also may transfer to such bridge broker[s]-dealer[s] any other assets and liabilities of the covered broker-dealer (including non-customer accounts and any associated property) as the Corporation may, in its discretion, determine to be appropriate. Paragraph (c) is based upon the broad authority of the Corporation as receiver to transfer any assets or liabilities of the covered broker-dealer to a bridge financial company in accordance with, and subject to the requirements of, section 210(h)(5) of the Dodd-Frank Act 69 and is designed to facilitate the 67 See §§ 380.63(b) and 302.103(b), as proposed. See also 12 U.S.C. 5390(a)(1)(O)(i)(I) and (II) (listing the specific conditions under which customer accounts would not be transferred to a bridge financial company if it was organized). 68 12 U.S.C. 5390(a)(1)(O)(i)(I) and (II). 69 See 12 U.S.C. 5390(h)(5)(A) (providing that the receiver may transfer any assets and liabilities of a covered financial company). The statute sets forth certain restrictions and limitations that are not affected by this proposed rule. See, e.g., 12 U.S.C. 5390(h)(1)(B)(ii) (restricting the assumption of liabilities that count as regulatory capital by the bridge financial company) and 12 U.S.C. 5390(h)(5)(F) (requiring that the aggregate liabilities transferred to the bridge financial company may not exceed the aggregate amount of assets transferred). E:\FR\FM\02MRP1.SGM 02MRP1 Federal Register / Vol. 81, No. 41 / Wednesday, March 2, 2016 / Proposed Rules receiver’s ability to continue the covered broker-dealer’s operations, minimize systemic risk, and maximize the value of the assets of the receivership.70 The transfer of assets and liabilities to a bridge broker-dealer under the proposed rule would enable the receiver to continue the day-to-day operations of the broker-dealer and facilitate the maximization of the value of the assets of the receivership by making it possible to avoid a forced or other distressed sale of the assets of the covered broker-dealer. In addition, the ability to continue the operations of the covered broker-dealer may help mitigate the impact of the failure of the covered broker-dealer on other market participants and financial market utilities and thereby minimize systemic risk. Finally, paragraph (c) of this section of the proposed rule clarifies that the transfer to a bridge broker-dealer of any account or property pursuant to this section does not create any implication that the holder of such an account qualifies as a ‘‘customer’’ or that the property so transferred qualifies as ‘‘customer property’’ or ‘‘customer name securities’’ within the meaning of SIPA or within the meaning of the rule. Under Title II, the Corporation may transfer all the assets of a covered broker-dealer to a bridge broker-dealer.71 Such a transfer of assets may include, for example, securities that were sold to the covered broker-dealer under reverse repurchase agreements. Under the terms of a typical reverse repurchase agreement, it is common for the broker-dealer to be able to use the purchased securities for its own purposes. In contrast, Commission rules specifically protect customer funds and securities and essentially forbid broker-dealers from using customer assets to finance any part of their businesses unrelated to servicing securities customers.72 An integral jstallworth on DSK7TPTVN1PROD with PROPOSALS 70 See §§ 380.63(f) and 302.103(f), as proposed. See also 12 U.S.C. 5390(h)(5) (granting authority to the Corporation as receiver to transfer assets and liabilities of a covered financial company to a bridge financial company). Similarly, under Title II, the Corporation, as receiver for a covered brokerdealer, may approve articles of association for such bridge broker-dealer. See 12 U.S.C. 5390(h)(2)(H)(i). The bridge broker-dealer would also be subject to the federal securities laws and all requirements with respect to being a member of a self-regulatory organization, unless exempted from any such requirements by the Commission as is necessary or appropriate in the public interest or for the protection of investors. See 12 U.S.C. 5390(h)(2)(H)(ii). 71 See 12 U.S.C 5390(h)(2)(H) and 12 U.S.C. 5390(h)(5) (granting authority to the Corporation as receiver to transfer assets and liabilities of a covered broker-dealer). 72 See Net Capital Requirements for Brokers and Dealers, Exchange Act Release No. 21651 (Jan. 11, 1985), 50 FR 2690, 2690 (Jan. 18, 1985). See also VerDate Sep<11>2014 13:19 Mar 01, 2016 Jkt 238001 component of the broker-dealer customer protection regime is that, under SIPA, customers have preferred status relative to general creditors with respect to customer property and customer name securities.73 Given the preferred status of customers, litigation has arisen regarding whether, consistent with the above example, claims of repo counterparties are ‘‘customer’’ claims under SIPA.74 In implementing section 205 of the Dodd-Frank Act, consistent with the statutory directive contained therein,75 the Corporation and the Commission are seeking to ensure that customers of the covered broker-dealer under Title II are treated in a manner at least as beneficial as would have been the case had the broker-dealer been liquidated under SIPA.76 Accordingly, the Commission and the Corporation are proposing to preserve customer status as would be the case in a SIPA proceeding. Thus, the proposed rule clarifies that moving assets to a bridge financial company as part of a Title II orderly liquidation is not determinative as to whether the holder of such an account qualifies as a ‘‘customer’’ or if the property so transferred qualifies as ‘‘customer property’’ or ‘‘customer name securities.’’ Rather, the status of the account holder and the assets in the orderly liquidation of a covered brokerdealer would depend upon whether the claimant would be a customer under SIPA.77 2. Other Provisions With Respect to Bridge Broker-Dealer The proposed rule addresses certain matters relating to account transfers to the bridge broker-dealer.78 The process set forth in this part of the proposed rule is designed to put the customer in the position the customer would have been in had the broker-dealer been liquidated in a SIPA proceeding.79 In a SIPA Broker-Dealers; Maintenance of Certain Basic Reserves, Exchange Act Release No. 9856 (Nov. 10, 1972), 37 FR 25224, 25224 (Nov. 29, 1972). 73 See 15 U.S.C. 78fff(a). 74 See, e.g., In re Lehman Brothers Inc., 492 B.R. 379 (Bankr. S.D.N.Y. 2013), aff’d, 506 B.R. 346 (S.D.N.Y. 2014). 75 See 12 U.S.C. 5385(f)(1) (pertaining to the statutory requirements with respect to the satisfaction of claims). 76 Id. 77 See 15 U.S.C. 78lll(2)(B) (SIPA definition of customer). See also 12 U.S.C. 5381(a)(10) (defining customer, customer name securities, customer property, and net equity in the context of a covered broker-dealer as the same meanings such terms have in section 16 of SIPA (15 U.S.C. 78lll)); In re Bernard L. Madoff Inv. Sec. LLC, 654 F.3d 229, 236 (2d Cir. 2011). 78 See §§ 380.63(d) and 302.103(d), as proposed. 79 See 12 U.S.C. 5385(f) (obligations of a covered broker-dealer to customers shall be satisfied in the manner and in an amount at least as beneficial to the customer as would have been the case had the PO 00000 Frm 00024 Fmt 4702 Sfmt 4702 10803 proceeding, the trustee would generally handle customer accounts in two ways. First, a trustee may sell or otherwise transfer to another SIPC member, without the consent of any customer, all or any part of a customer’s account, as a way to return customer property to the control of the customer.80 Such account transfers are separate from the customer claim process. Customer account transfers are useful insofar as they serve to allow customers to resume trading more quickly and minimize disruption in the securities markets. If it is not practicable to transfer customer accounts, then the second way of returning customer property to the control of customers is through the customer claims process. Under bankruptcy court supervision, the SIPA trustee will determine each customer’s net equity and the amount of customer property available for customers.81 Once the SIPA trustee determines that a claim is a customer claim (an ‘‘allowed customer claim’’), the customer will be entitled to a ratable share of the fund of customer property. As discussed above, SIPA defines ‘‘customer property’’ to generally include all the customerrelated property held by the brokerdealer.82 Allowed customer claims are determined on the basis of a customer’s net equity,83 which, as described above, generally is the dollar value of a customer’s account on the filing date of the SIPA proceeding less indebtedness of the customer to the broker-dealer on the filing date.84 Once the trustee determines the fund of customer property and customer net equity claims, the trustee can establish each customer’s pro rata share of the fund of customer property. Customer net equity claims generally are satisfied to the extent possible by providing the customer with the identical securities owned by that customer as of the day the SIPA proceeding was commenced.85 Although a Title II orderly liquidation is under a different statutory authority, the process for determining and satisfying customer claims would follow a substantially similar process to a SIPA proceeding. Upon the commencement of a SIPA liquidation, customers’ cash and securities held by the broker-dealer are returned to customers on a pro rata actual proceeds realized from the liquidation of the covered broker-dealer been distributed in a proceeding under SIPA). 80 See 15 U.S.C. 78fff–2(f). 81 See generally 15 U.S.C. 78fff. 82 See 15 U.S.C. 78lll(4). See Section II.A.1. 83 See 15 U.S.C. 78lll(11). 84 Id. See Section II.A.1. 85 See 15 U.S.C. 78fff–2(d). E:\FR\FM\02MRP1.SGM 02MRP1 10804 Federal Register / Vol. 81, No. 41 / Wednesday, March 2, 2016 / Proposed Rules basis.86 If sufficient funds are not available at the broker-dealer to satisfy customer net equity claims, SIPC advances would be used to supplement the distribution, up to a ceiling of $500,000 per customer, including a maximum of $250,000 for cash claims.87 When applicable, SIPC will return securities that are registered in the customer’s name or are in the process of being registered directly to each customer.88 As in a SIPA proceeding, in a Title II liquidation of a covered brokerdealer, the process of determining net equity would thus begin with a calculation of customers’ net equity. A customer’s net equity claim against a covered broker-dealer would be deemed to be satisfied and discharged to the extent that customer property of the covered broker-dealer, along with property made available through advances from SIPC, is transferred and allocated to the customer’s account at the bridge broker-dealer. The bridge broker-dealer would undertake the obligations of the covered broker-dealer only with respect to such property. The Corporation, as receiver, in consultation with SIPC, as trustee, would allocate customer property and property made available through advances from SIPC in a manner consistent with SIPA and with SIPC’s normal practices thereunder. The calculation of net equity would not be affected by the assumption of liability by the bridge broker-dealer to each customer in connection with the property transferred to the bridge broker-dealer. The use of the bridge broker-dealer is designed to give customers access to their accounts as quickly as practicable, while ensuring that customers receive assets in the form and amount that they would receive in a SIPA liquidation.89 86 15 U.S.C. 8fff–2(b). U.S.C. 8fff–3(a). 88 15 U.S.C. 8fff–2(b)(2). 89 This outcome would satisfy the requirements of section 205(f)(1) of the Dodd-Frank Act. See 12 U.S.C. 5385(f)(1) (stating that notwithstanding any other provision of this title, all obligations of a covered broker or dealer or of any bridge financial company established with respect to such covered broker or dealer to a customer relating to, or net equity claims based upon, customer property or customer name securities shall be promptly discharged by SIPC, the Corporation, or the bridge financial company, as applicable, by the delivery of securities or the making of payments to or for the account of such customer, in a manner and in an amount at least as beneficial to the customer as would have been the case had the actual proceeds realized from the liquidation of the covered broker or dealer under this title been distributed in a proceeding under SIPA without the appointment of the Corporation as receiver and without any transfer of assets or liabilities to a bridge financial company, and with a filing date as of the date on which the Corporation is appointed as receiver). jstallworth on DSK7TPTVN1PROD with PROPOSALS 87 15 VerDate Sep<11>2014 13:19 Mar 01, 2016 Jkt 238001 The proposed rule also provides that allocations to customer accounts at the bridge broker-dealer may initially be derived from estimates based upon the books and records of the covered brokerdealer or other information deemed relevant by the Corporation as receiver, in consultation with SIPC as trustee.90 This approach is based upon experience with SIPA liquidations where, for example, there were difficulties reconciling the broker-dealer’s records with the records of central counterparties or other counterparties or other factors that caused delay in verifying customer accounts.91 This provision of the proposed rule is designed to facilitate access to accounts for the customers at the bridge brokerdealer as soon as is practicable under the circumstances while facilitating the refinement of the calculation of allocations of customer property to customer accounts as additional information becomes available. This process will help ensure both that customers have access to their customer accounts as quickly as practicable and that customer property ultimately will be fairly and accurately allocated. The proposed rule also states that the bridge broker-dealer undertakes the obligations of a covered broker-dealer with respect to each person holding an account transferred to the bridge brokerdealer, but only to the extent of the property (and SIPC funds) so transferred and held by the bridge broker-dealer with respect to that person’s account.92 This portion of the proposed rule provides customers of the bridge brokerdealer with the assurance that the securities laws relating to the protection of customer property will apply to customers of a bridge broker-dealer in the same manner as they apply to customers of a broker-dealer which is being liquidated outside of Title II.93 The Agencies believe that such assurances would help to reduce uncertainty regarding the protections that will be offered to customers. This portion of the proposed rule also provides that the bridge broker-dealer 90 See §§ 380.63(d) and 302.103(d), as proposed. See also 12 U.S.C. 5385(h) (granting the Corporation and the Commission authority to adopt rules to implement section 205 of the Dodd-Frank Act). 91 See, e.g., In re Lehman Brothers Inc., (Bankr. S.D.N.Y. 2008), Trustee’s Preliminary Investigation Report and Recommendations, available at https:// dm.epiq11.com/LBI/Project#). 92 See §§ 380.63(d) and 302.103(d), as proposed. 93 See also 12 U.S.C. 5390(h)(2)(H)(ii) (stating that the bridge financial company shall be subject to the federal securities laws and all requirements with respect to being a member of a self-regulatory organization, unless exempted from any such requirements by the Commission, as is necessary or appropriate in the public interest or for the protection of investors). PO 00000 Frm 00025 Fmt 4702 Sfmt 4702 would not have any obligations with respect to any customer property or other property that is not transferred from the covered broker-dealer to the bridge broker-dealer.94 A customer’s net equity claim remains with the covered broker-dealer and, in most cases, would be satisfied, in whole or in part, by transferring the customer’s account together with customer property, to the bridge broker-dealer.95 In the event that a customer’s account and the associated account property is not so transferred, the customer’s net equity claim would be subject to satisfaction by SIPC as the trustee for the covered broker-dealer in the same manner and to the same extent as in a SIPA proceeding.96 The bridge broker-dealer section of the proposed rule 97 also provides that the transfer of assets or liabilities of a covered broker-dealer, including customer accounts and all associated customer name securities and customer property, assets and liabilities held by a covered broker-dealer for non-customer creditors, and assets and liabilities associated with any trust or custody business, to a bridge broker-dealer, would be effective without any consent, authorization, or approval of any person or entity, including but not limited to, any customer, contract party, governmental authority, or court.98 This section is based on the Corporation’s authority, under three separate statutory provisions of Title II.99 The broad language of this paragraph of the proposed rule is intended to give full effect to the statutory provisions of the Dodd-Frank Act regarding transfers of assets and liabilities of a covered financial company,100 which represent an important recognition by Congress that, in order to ensure the financial stability of the United States following the failure of a covered financial company, the Corporation as receiver must be free to determine which 94 See §§ 380.63(d) and 302.103(d), as proposed. §§ 380.63(d) and 302.103(d), as proposed. 96 See 12 U.S.C. 5385(f)(2). 97 See §§ 380.63(e) and 302.103(e), as proposed. 98 See §§ 380.63(e) and 302.103(e), as proposed; see also 12 U.S.C. 5390(h)(5)(D). 99 See 12 U.S.C. 5390(h)(5)(D). See also 12 U.S.C. 5390(a)(1)(G); 12 U.S.C. 5390(a)(1)(O). Notably, the power to transfer customer accounts and customer property without customer consent is also found in SIPA. See 15 U.S.C. 78fff–2(f). 100 The proposed rule text omits the reference to ‘‘further’’ approvals found in 12 U.S.C. 5390(h)(5)(D). The reference in the statute is to the government approvals needed in connection with organizing the bridge financial company, such as the approval of the articles of association and bylaws, as established under 12 U.S.C. 5390(h). These approvals will already have been obtained prior to any transfer under the proposed rule, making the reference to ‘‘further’’ approvals unnecessary and superfluous. 95 See E:\FR\FM\02MRP1.SGM 02MRP1 jstallworth on DSK7TPTVN1PROD with PROPOSALS Federal Register / Vol. 81, No. 41 / Wednesday, March 2, 2016 / Proposed Rules contracts, assets, and liabilities of the covered financial company are to be transferred to a bridge financial company, and to transfer such contracts, assets, and liabilities expeditiously and irrespective of whether any other person or entity consents to or approves of the transfer. The impracticality of requiring the Corporation as receiver to obtain the consent or approval of others in order to effectuate a transfer of the failed company’s contracts, assets, and liabilities arises whether the consent or approval otherwise would be required as a consequence of laws, regulations, or contractual provisions, including as a result of options, rights of first refusal, or similar contractual rights, or any other restraints on alienation or transfer. Paragraph (e) would apply regardless of the identity of the holder of the restraint on alienation or transfer, whether such holder is a local, state, federal or foreign government, a governmental department or other governmental body of any sort, a court or other tribunal, a corporation, partnership, trust, or other type of company or entity, or an individual, and regardless of the source of the restraint on alienation or transfer, whether a statute, regulation, common law, or contract. It is the Corporation’s view that the transfer of any contract to a bridge financial company would not result in a breach of the contract and would not give rise to a claim or liability for damages. In addition, under section 210(h)(2)(E) of the Dodd-Frank Act, no additional assignment or further assurance is required of any person or entity to effectuate such a transfer of assets or liabilities by the Corporation as receiver for the covered broker-dealer. Paragraph (e) of the proposed rule would facilitate the prompt transfer of assets and liabilities of a covered brokerdealer to a bridge broker-dealer and enhance the Corporation’s ability to maintain critical operations of the covered broker-dealer. Rapid action to set-up a bridge broker-dealer and transfer assets, including customer accounts and customer property, may be critical to preserving financial stability and to giving customers the promptest possible access to their accounts. Paragraph (f) of the bridge brokerdealer provision of the proposed rule provides for the succession of the bridge broker-dealer to the rights, powers, authorities, or privileges of the covered broker-dealer.101 This provision of the proposed rule draws directly from authority provided in Title II and is designed to facilitate the ability of the Corporation as receiver to operate the 101 See §§ 380.63(f) and 302.103(f), as proposed. VerDate Sep<11>2014 13:19 Mar 01, 2016 Jkt 238001 bridge broker-dealer.102 Pursuant to paragraph (g) of the bridge broker-dealer provision,103 the bridge broker-dealer would also be subject to the federal securities laws and all requirements with respect to being a member of a selfregulatory organization, unless exempted from any such requirements by the Commission as is necessary or appropriate in the public interest or for the protection of investors.104 This provision of the proposed rule also draws closely upon Title II.105 Paragraph (h) of the bridge brokerdealer provision of the proposed rule states that at the end of the term of existence of the bridge broker-dealer, any proceeds or other assets that remain after payment of all administrative expenses of the bridge broker-dealer and all other claims against the bridge broker-dealer would be distributed to the Corporation as receiver for the related covered broker-dealer.106 Stated differently, the residual value in the bridge broker-dealer after payment of its obligations would benefit the creditors of the covered broker-dealer in satisfaction of their claims. E. Claims of Customers and Other Creditors of a Covered Broker-Dealer 107 The proposed section on the claims of the covered broker-dealer’s customers and other creditors would address the claims process for those customers and other creditors as well as the respective roles of the trustee and the receiver with respect to those claims.108 The proposed section would provide SIPC with the authority as trustee for the covered broker-dealer to make determinations, allocations, and advances in a manner consistent with its customary practices in a liquidation under SIPA.109 Specifically, the proposed section provides that the allocation of customer property, advances from SIPC, and delivery of customer name securities to each customer or to its customer account at a bridge broker or dealer, in partial or complete satisfaction of such customer’s net equity claims as of the close of business on the appointment 102 See 12 U.S.C. 5390(h)(2)(H)(i). §§ 380.63(g) and 302.103(g), as proposed. 104 See 12 U.S.C. 5390(h)(2)(H)(ii). 105 Id. 106 See §§ 380.63(h) and 302.103(h), as proposed. See also 12 U.S.C. 5385(d)(2); 12 U.S.C. 5390(h)(15)(B). 107 If adopted, the section of the proposed rule on claims of customers and other creditors of a covered broker-dealer will appear in 12 CFR 380.64 for purposes of the Corporation and 17 CFR 302.104 for purposes of the Commission. The rule text in both CFRs will be identical. 108 See §§ 380.64 and 302.104, as proposed. 109 See §§ 380.64(a)(4) and 302.104(a)(4), as proposed. See also 15 U.S.C. 78aaa et seq. 103 See PO 00000 Frm 00026 Fmt 4702 Sfmt 4702 10805 date, shall be in a manner, including form and timing, and in an amount at least as beneficial to such customer as would have been the case had the covered broker or dealer been liquidated under SIPA.110 Each customer of a covered broker-dealer would receive cash and securities at least equal in amount and value, as of the appointment date, to what that customer would have received in a SIPA proceeding.111 This proposed section further addresses certain procedural aspects of the claims determination process in accordance with the requirements set forth in section 210(a)(2) through (5) of the Dodd-Frank Act.112 The proposed section describes the role of the receiver of a covered broker-dealer with respect to claims and provides for the publication and mailing of notices to creditors of the covered broker-dealer by the receiver in a manner consistent with both SIPA and the notice procedures applicable to covered financial companies generally under section 210(a)(2) of the Dodd-Frank Act.113 The proposed section provides that the notice of the Corporation’s appointment as receiver must be accompanied by notice of SIPC’s appointment as trustee.114 In addition, the Corporation, as receiver, would consult with SIPC, as trustee, regarding procedures for filing a claim including the form of claim and the filing instructions, to facilitate a process that is consistent with SIPC’s general practices.115 The claim form would include a provision permitting a claimant to claim customer status, if applicable, but the inclusion of any such claim to customer status on the claim form would not be determinative of customer status under SIPA. The proposed rule would set the claims bar date as the date following the expiration of the six-month period beginning on the date that the notice to creditors is first published.116 The claims bar date in the proposed rule is consistent with section 8(a) of SIPA, which provides for the barring of claims after the expiration of the six-month period beginning upon publication.117 The six-month period is also consistent 110 See §§ 380.64(a)(4) and 302.104(a)(4), as proposed. 111 See 15 U.S.C. 78aaa et seq. 112 12 U.S.C. 5390(a)(2) through (5). 113 See §§ 380.64(b) and 302.104(b), as proposed. See also 12 U.S.C. 5390(a)(2). 114 See §§ 380.64(b)(1) and 302.104(b)(1), as proposed. 115 See §§ 380.64(b)(2) and 302.104(b)(2), as proposed. 116 See §§ 380.64(b)(3) and 302.104(b)(3), as proposed (discussing claims bar date). 117 See 15 U.S.C. 78fff–2(a). E:\FR\FM\02MRP1.SGM 02MRP1 10806 Federal Register / Vol. 81, No. 41 / Wednesday, March 2, 2016 / Proposed Rules with section 210(a)(2)(B)(i) of the DoddFrank Act, which requires that the claims bar date be no less than ninety days after first publication.118 As required by section 210(a)(3)(C)(i) of the Dodd-Frank Act, the proposed rule provides that any claim filed after the claims bar date shall be disallowed, and such disallowance shall be final, except that a claim filed after the claims bar date would be considered by the receiver if (i) the claimant did not receive notice of the appointment of the receiver in time to file a claim before the claim date, and (ii) the claim is filed in time to permit payment of the claim, as provided by section 210(a)(3)(C)(ii) of the Dodd-Frank Act.119 This exception for late-filed claims due to lack of notice to the claimant would serve a similar purpose (i.e., to ensure a meaningful opportunity for claimants to participate in the claims process) as the ‘‘reasonable, fixed extension of time’’ that may be granted to the otherwise applicable six-month deadline under SIPA to certain specified classes of claimants.120 Section 8(a)(3) of SIPA provides that a customer who wants to assure that its net equity claim is paid out of customer property must file its claim with the SIPA trustee within a period of time set by the court (not exceeding 60 days after the date of publication of the notice provided in section 8(a)(1) of SIPA) notwithstanding that the claims bar date is later.121 The proposed rule conforms to this section of SIPA by providing that any claim for net equity filed more than 60 days after the notice to creditors is first published need not be paid or satisfied in whole or in part out of customer property and, to the extent such claim is paid by funds advanced by SIPC, it would be satisfied in cash or securities, or both, as SIPC, the trustee, determines is most economical to the receivership estate.122 Under the proposed rule, the Corporation as receiver would be required to notify a claimant whether it allows a claim within the 180-day period 123 as such time period may be extended by written agreement,124 or the expedited 90-day period,125 118 See 12 U.S.C. 5390(a)(2)(B)(i). §§ 380.64(b)(3) and 302.104(b)(3), as proposed. See also 12 U.S.C. 5390(a)(3)(C)(i) and (ii). 120 See 15 U.S.C. 78fff–2(a)(3). 121 See 15 U.S.C. 78fff–2(a)(3) and 15 U.S.C. 78fff– 2(a)(1). 122 See §§ 380.64(b)(3) and 302.104(b)(3), as proposed. See also 15 U.S.C. 78fff–2(a)(3). 123 See §§ 380.64(c) and 302.104(c), as proposed. See also 12 U.S.C. 5390(a)(3)(A)(i). 124 See 15 U.S.C. 5390(a)(3)(A). 125 See §§ 380.64(c) and 302.104(c), as proposed. See also 12 U.S.C. 5390(a)(5)(B). jstallworth on DSK7TPTVN1PROD with PROPOSALS 119 See VerDate Sep<11>2014 13:19 Mar 01, 2016 Jkt 238001 whichever would be applicable. The process established for the determination of claims by customers of a covered broker-dealer for customer property or customer name securities would constitute the exclusive process for the determination of such claims.126 This process corresponds to the SIPA provision that requires that customer claims to customer property be determined pro rata based on each customer’s net equity applied to all customer property as a whole.127 While the Dodd-Frank Act provides for expedited treatment of certain claims within 90 days, given that all customers may have preferred status with respect to customer property and customer name securities, no one customer’s claim, or group of customer claims, would be treated in an expedited manner ahead of other customers’ claims. Consequently, the concept of expedited relief would not apply to customer claims.128 The receiver’s determination to allow or disallow a claim in whole or in part would utilize the determinations made by SIPC, as trustee, with respect to customer status, claims for net equity, claims for customer name securities, and whether property held by the covered brokerdealer qualifies as customer property.129 A claimant may seek a de novo judicial review of any claim that is disallowed in whole or in part by the receiver, including but not limited to any claim disallowed in whole or part based upon any determination made by SIPC.130 F. Additional Proposed Sections In addition to the previously discussed proposed sections, the Agencies propose to include sections in the proposed rule addressing: (1) The priorities for unsecured claims against a covered broker-dealer;131 (2) the administrative expenses of SIPC;132 and 126 See §§ 380.64(c) and 302.104(c), as proposed. 15 U.S.C. 78fff–2. 128 See §§ 380.64(c) and 302.104(c), as proposed. 129 Id. 130 See §§ 380.64(d) and 302.104(d), as proposed (stating thathe claimant may seek a judicial determination of any claim disallowed, in whole or in part, by the Corporation as receiver, including any claim disallowed based upon any determination(s) made by SIPC as trustee by the appropriate district or territorial court of the United States). See also 12 U.S.C. 5390(a)(4) and (5). 131 If adopted, the priorities for unsecured claims against a covered broker-dealer section will appear in 12 CFR 380.65 for purposes of the Corporation and 17 CFR 302.105 for purposes of the Commission. The rule text in both CFRs will be identical. 132 If adopted, the SIPC administrative expenses section will appear in 12 CFR 380.66 for purposes of the Corporation and 17 CFR 302.106 for purposes of the Commission. The rule text in both CFRs will be identical. 127 See PO 00000 Frm 00027 Fmt 4702 Sfmt 4702 (3) QFCs.133 The Dodd-Frank Act sets forth special priorities for the payment of claims of general unsecured creditors of a covered broker-dealer, which would be addressed in the proposed section on priorities for unsecured claims against a covered broker-dealer.134 The priorities for unsecured claims against a covered broker-dealer include claims for unsatisfied net equity of a customer and certain administrative expenses of the receiver and SIPC.135 The priorities set forth in the proposed rule express the cumulative statutory requirements set forth in Title II.136 First, the priorities provide that the administrative expenses of SIPC as trustee for a covered broker-dealer would be reimbursed pro rata with administrative expenses of the receiver for the covered brokerdealer.137 Second, the amounts paid by the Corporation as receiver to customers or SIPC would be reimbursed on a pro rata basis with amounts owed to the United States, including amounts borrowed from the U.S. Treasury for the orderly liquidation fund.138 Third, the amounts advanced by SIPC for the satisfaction of customer net equity claims would be reimbursed subsequent to amounts owed to the United States, but before all other claims.139 Title II provides that SIPC is entitled to recover administrative expenses incurred in performing its responsibilities under section 205 on an equal basis with the Corporation.140 Title II also sets forth a description of the administrative expenses of the receiver.141 In order to provide additional clarity as to the types of administrative expenses that SIPC would be entitled to recover in connection with its role as trustee for the covered broker-dealer, the proposed rule provides that SIPC, in connection 133 If adopted, the QFC section will appear in 12 CFR 380.67 for purposes of the Corporation and 17 CFR 302.107 for purposes of the Commission. The rule text in both CFRs will be identical. 134 See 12 U.S.C. 5390(b)(6) (providing the priority of expenses and unsecured claims in the orderly liquidation of SIPC members). 135 See §§ 380.65 and 302.105, as proposed. 136 See 12 U.S.C. 5390(b)(6) (providing the priority of expenses and unsecured claims in the orderly liquidation of SIPC members). See also §§ 380.65 and 302.105, as proposed. 137 See §§ 380.65(a) and 302.105(a), as proposed. See also 12 U.S.C. 5390(b)(6)(A). 138 See §§ 380.65(b) and 302.105(b), as proposed. See also 12 U.S.C. 5390(b)(6)(B); 12 U.S.C. 5390(n) (establishing the ‘‘orderly liquidation fund’’ available to the Corporation to carry out the authorities granted to it under Title II). 139 See §§ 380.65(c) and 302.105(c), as proposed. See also 12 U.S.C. 5390(b)(6)(C). 140 See 12 U.S.C. 5390(b)(6)(A). The regulation governing the Corporation’s administrative expenses in its role as receiver under Title II is located at 12 CFR 380.22. 141 See 12 U.S.C. 5381(a)(1). E:\FR\FM\02MRP1.SGM 02MRP1 Federal Register / Vol. 81, No. 41 / Wednesday, March 2, 2016 / Proposed Rules with its role as trustee for the covered broker-dealer, has the authority to ‘‘utilize the services of private persons, including private attorneys, accountants, consultants, advisors, outside experts and other third party professionals.’’ The section further provides SIPC with an allowed administrative expense claim with respect to any amounts paid by SIPC for services provided by these persons if those services are ‘‘practicable, efficient and cost-effective.’’142 The proposed definition of administrative expenses of SIPC conforms to both the definition of administrative expenses of the Corporation as receiver and the costs and expenses of administration reimbursable to SIPC as trustee in the liquidation of a broker-dealer under SIPA.143 Specifically, the proposed definition includes ‘‘the costs and expenses of such attorneys, accountants, consultants, advisors, outside experts and other third parties, and other proper expenses that would be allowable to a third party trustee under 15 U.S.C. 78eee(b)(5)(A), including the costs and expenses of SIPC employees that would be allowable pursuant to 15 U.S.C. 78fff(e).’’144 The proposed definition excludes advances from SIPC to satisfy customer claims for net equity because the Dodd-Frank Act specifies that those advances are treated differently than administrative expenses with respect to the priority of payment.145 Lastly, the proposed section on QFCs states that QFCs are governed in accordance with Title II.146 Paragraph (b)(4) of section 205 of the Dodd-Frank Act states in pertinent part that notwithstanding any provision of SIPA the rights and obligations of any party to a qualified financial contract (as the term is defined in section 210(c)(8)) to which a covered broker or dealer for which the Corporation has been appointed receiver is a party shall be governed exclusively by section 210, including the limitations and restrictions contained in section 210(c)(10)(B).147 Paragraph (c)(8)(A) of 142 See §§ 380.66(a) and 302.106(a), as proposed. §§ 380.66(a) and 302.106(a), as proposed. See also 12 U.S.C. 5381(a)(1) (defining administrative expenses of the receiver); 15 U.S.C. 78eee(5) (providing for compensation for services and reimbursement of expenses). 144 See §§ 380.66(a) and 302.106(a), as proposed. See also 15 U.S.C. 78eee(b)(5)(A); 15 U.S.C. 78fff(e). 145 See §§ 380.66(b) and 302.106(b), as proposed (defining the term administrative expenses of SIPC). See also 12 U.S.C. 5390(b)(6)(C) (stating SIPC’s entitlement to recover any amounts paid out to meet its obligations under section 205 and under SIPA). 146 See §§ 380.67 and 302.107, as proposed. 147 See 12 U.S.C. 5385(b)(4) (stating that notwithstanding any provision of SIPA .the rights jstallworth on DSK7TPTVN1PROD with PROPOSALS 143 See VerDate Sep<11>2014 13:19 Mar 01, 2016 Jkt 238001 section 210 states that no person shall be stayed or prohibited from exercising: (i) Any right that such person has to cause the termination, liquidation, or acceleration of any qualified financial contract with a covered financial company which arises upon the date of appointment of the Corporation as receiver for such covered financial company or at any time after such appointment; (ii) any right under any security agreement or arrangement or other credit enhancement related to one or more qualified financial contracts described in clause (i); or (iii) any right to offset or net out any termination value, payment amount, or other transfer obligation arising under or in connection with one or more contracts or agreements described in clause (i), including any master agreement for such contracts or agreements.’’148 Paragraph (c)(10)(B)(i)(I) and (II) of section 210 provides in pertinent part that a person who is a party to a QFC with a covered financial company may not exercise any right that such person has to terminate, liquidate, or net such contract under paragraph (c)(8)(A) of section 210 solely by reason of or incidental to the appointment under Title II of the Corporation as receiver for the covered financial company: (1) Until 5:00 p.m. eastern time on the business day following the date of the appointment; or (2) after the person has received notice that the contract has been transferred pursuant to paragraph (c)(9)(A) of section 210.149 The proposed rule reflects these statutory directives and states: ‘‘The rights and obligations of any party to a qualified financial contract to which a covered broker or dealer is a party shall be governed exclusively by 12 U.S.C. 5390, including the limitations and restrictions contained in 12 U.S.C. 5390(c)(10)(B), and any regulations promulgated thereunder.’’150 III. Requests for Comments A. In General The Agencies generally request comment on the proposal to implement Title II’s orderly liquidation of covered broker-dealers provisions. The Agencies invite interested persons to submit written comments on any aspect of the proposed rule, in addition to the specific requests for comment. Further, the Agencies invite comment on other and obligations of any party to a qualified financial contract to which a covered broker or dealer is a party shall be governed exclusively by section 210 of the Dodd-Frank Act). 148 See 12 U.S.C. 5390(c)(8)(A). 149 See 12 U.S.C. 5390(c)(10)(B). 150 See §§ 380.67 and 302.107, as proposed. PO 00000 Frm 00028 Fmt 4702 Sfmt 4702 10807 matters that might have an effect on the proposed rule contained in this release, including any competitive impact. B. Requests for Comment on Certain Specific Matters In addition to the general request for comments, the Agencies request comment with respect to the following specific questions: 1. In light of section 205(f)(1)’s requirement that customers in a section 205 orderly liquidation receive distributions that are at least as beneficial as what they would have received in a SIPA liquidation, are there any circumstances in which the application of the proposed rule would result in delivery or distributions to customers of securities or cash, in connection with net equity claims, customer property or customer name securities, in a manner and in an amount less than such customers would receive if the covered broker-dealer were subject to a SIPA liquidation? If yes, what are those circumstances? Please be specific. 2. Would an orderly liquidation of a broker-dealer under the approach described in the proposed rule have any unintended or adverse impact(s) on customers or other classes of claimants? If yes, what are those impacts? Are there other approach(es) that might be consistent with the requirements of the Dodd-Frank Act and have fewer such impacts? What are the other approach(es) that might eliminate or minimize such unintended or adverse impact(s), and how would they do so? Please be specific. What would be the costs or benefits associated with such alternative approaches? 3. Would an orderly liquidation of a broker-dealer under the approach described in the proposed rule have any unintended or adverse impact(s) on market participants generally? If yes, what are those impacts? Are there other approach(es) that might be consistent with the requirements of the DoddFrank Act and have fewer such impacts? What are the other approach(es) that might eliminate or minimize such unintended or adverse impact(s), and how would they do so? Please be specific. What would be the costs or benefits associated with such alternative approaches? 4. Are there any matter(s) with respect to the orderly liquidation of a covered broker-dealer under Title II of the DoddFrank Act that are not currently addressed in the proposed rule, but that should be addressed in a rulemaking under section 205(h) of the Dodd-Frank Act, 12 U.S.C. 5385(h)? If yes, what are E:\FR\FM\02MRP1.SGM 02MRP1 jstallworth on DSK7TPTVN1PROD with PROPOSALS 10808 Federal Register / Vol. 81, No. 41 / Wednesday, March 2, 2016 / Proposed Rules those matters, why should they be addressed, and how? Please be specific. 5. Does the proposed rule clearly address the roles of the FDIC as receiver and SIPC as trustee for the covered broker-dealer in a Title II orderly liquidation? If not, how could the proposed rule be made clearer? 6. Does the proposed rule clearly address the treatment of customers and other classes of claimants and creditors in a Title II orderly liquidation of a covered broker-dealer? Does the proposed rule clearly address the claims bar date and the 60-day filing deadline for payment of net equity claims out of customer property? If not, in what respects could the proposed rule be made clearer and how? 7. Are the priorities for the allocation of customer property and other assets of the covered broker-dealer clearly addressed by the proposed rule? If not, in what respects could they be made clearer and how? 8. Are the standards for judicial review of a claim that is disallowed, in whole or in part, clearly addressed by the proposed rule? If not, in what respects could the proposed rule be made clearer and how? 9. Are the matters listed for inclusion in the protective decree appropriate? Are there any other matters not mentioned that should be included in the protective decree, and if so, why? Could the provision of the protective decree clarifying that, if a protective decree were filed on a date other than the appointment date, the protective decree’s filing date would be deemed be the appointment date, cause harm to customers, other claimants, creditors, shareholders, or other interested parties? If so, how? Are there alternative approaches that would not have such impacts? If yes, please describe in detail and provide information about associated costs or benefits. 10. Would customers be harmed by their inability to seek determinations of their claims within the expedited 90day period (as provided by section 210(a)(5)(B) of the Dodd-Frank Act) rather than within six-months (as provided by section 210(a)(3)(A)(i) of the Dodd-Frank Act)? If so, how? If customers were permitted to seek expedited determinations of their claims, would that allow them to ‘‘jump ahead’’ of other similarly-situated claimants? Would that be appropriate? 11. What are the expected costs to covered broker-dealers as a result of this proposed rule? 12. Are there any costs or benefits of the proposed rule for customers or other creditors of covered broker-dealers, or VerDate Sep<11>2014 13:19 Mar 01, 2016 Jkt 238001 market participants generally, that are not described above? Please describe. 13. What are the proposed rule’s implications for systemic risk? 14. Are there any anticipated consequences of the proposed rule that are not otherwise described in this release? Please be specific. IV. Paperwork Reduction Act The proposed rule would clarify the process for the orderly liquidation of a covered broker-dealer under Title II of the Dodd-Frank Act. The proposed rule addresses only the process to be used in the liquidation of the covered brokerdealer and does not create any new, or revise any existing, collection of information pursuant to the Paperwork Reduction Act.151 Consequently, no information has been submitted to the Office of Management and Budget for review. The Agencies request comment on the assertion that the proposed rule will not create any new, or revise any existing, collection of information pursuant to the Paperwork Reduction Act. V. Economic Analysis A. Introduction and General Economic Considerations The Commission and the Corporation are jointly proposing this rule to implement provisions applicable to the orderly liquidation of covered brokerdealers pursuant to section 205(h) of the Dodd-Frank Act in manner that protects market participants by clearly establishing expectations and equitable treatment for customers and creditors of failed broker-dealers, as well as other market participants. The Commission and the Corporation are mindful of the costs and benefits of their respective rules. The following economic analysis seeks to identify and consider the benefits and costs—including the effects on efficiency, competition, and capital formation—that would result from the proposed rule. Overall, the Commission and the Corporation preliminarily believe that the primary benefit of the proposed rule is to codify additional details regarding the process for orderly liquidation of failed broker-dealers which will provide additional structure and enable consistent application of the process. Importantly, the proposed rule does not affect the set of options available to the Commission and the Corporation, nor does it affect the range of possible outcomes. The detailed analysis of costs and benefits regarding the proposed rule is discussed below. The Dodd-Frank Act specifically provides that the FDIC may be 151 44 PO 00000 U.S.C. 3501 et seq. Frm 00029 Fmt 4702 Sfmt 4702 appointed receiver for a systemically important broker-dealer for purposes of the orderly liquidation of the company using the powers and authorities granted to the FDIC under Title II of the Act.152 Section 205 of the Dodd-Frank Act sets forth a process for the orderly liquidation of covered broker-dealers that is an alternative to the process under SIPA, but that process incorporates many of the customer protection features of SIPA into a Title II orderly liquidation. Congress recognized that broker-dealers are different from other kinds of systemically important financial companies in several ways, not the least of which is how customers of a brokerdealer are treated in an insolvency proceeding relating to the brokerdealer.153 Section 205 of the DoddFrank Act is intended to address situations where the failure of a large broker-dealer could have broader impacts on the stability of the United States financial system. The financial crisis of 2008 and the ensuing economic recession resulted in the failure of many financial entities. Liquidity problems that initially began at a small set of firms quickly spread as uncertainty about which institutions were solvent increased, triggering broader market disruptions, including a general loss of liquidity, distressed asset sales, and system-wide redemption runs by some participants.154 The proposed rule seeks to implement the orderly liquidation provisions of the Dodd-Frank Act in a manner that is designed to help reduce both the likelihood and the severity of financial market disruptions that could result from the failure of a covered broker-dealer. In the case of a failing broker-dealer, the broker-dealer customer protection regime is primarily composed of SIPA and the Exchange Act, as administered by SIPC and the Commission. Among other Commission financial responsibility rules, Rule 15c3–3 specifically protects customer funds and securities held by a broker-dealer and essentially forbids broker-dealers from using customer assets to finance any part of their businesses unrelated to servicing securities customers.155 With 152 See 12 U.S.C. 5382, 12 U.S.C. 5383, and 12 U.S.C. 5384. 153 See 12 U.S.C. 5385 (orderly liquidation of covered brokers and dealers). 154 See Brunnermeir, M. (2009), Deciphering the Liquidity and Credit Crunch 2007–2008, Journal of Economic Perspectives 23, 77–100. 155 See Net Capital Requirements for Brokers and Dealers, Exchange Act Release No. 21651 (Jan. 11, 1985), 50 FR 2690, 2690 (Jan. 18, 1985). See also Broker-Dealers; Maintenance of Certain Basic Reserves, Exchange Act Release No. 9856 (Nov. 10, 1972), 37 FR 25224, 25224 (Nov. 29, 1972). E:\FR\FM\02MRP1.SGM 02MRP1 Federal Register / Vol. 81, No. 41 / Wednesday, March 2, 2016 / Proposed Rules respect to SIPA, and as a general matter, in the event that a broker-dealer enters into a SIPA liquidation, customers’ cash and securities held by the broker-dealer are returned to customers on a pro-rata basis.156 If the broker-dealer does not have sufficient funds to satisfy customer net equity claims, SIPC advances may be used to supplement the distribution, up to a ceiling of $500,000 per customer, including a maximum of $250,000 for cash claims.157 When applicable, SIPC or a SIPA trustee will return securities that are registered in the customer’s name, or are in the process of being registered, directly to each customer.158 An integral component of the broker-dealer customer protection regime is that, under SIPA, customers have preferred status relative to general creditors with respect to customer property and customer name securities.159 SIPC or a SIPA trustee may sell or transfer customer accounts to another SIPC member in order for the customers to regain access to their accounts in an expedited fashion.160 Title II of the Dodd-Frank Act supplemented the customer protection regime for broker-dealers. As described above in more detail, in the event a covered broker-dealer fails,161 Title II provides the FDIC with a broader set of tools to help ensure orderly liquidation, including the ability to transfer all assets and liabilities held by a brokerdealer— not just customer assets—to another broker-dealer, as well as the ability to borrow from the U.S. Treasury.162 Upon the commencement 156 See 15 U.S.C. 78fff–2(b). 15 U.S.C. 78fff–3(a). 158 See 15 U.S.C. 78fff–2(c). 159 See 15 U.S.C. 78fff(a). 160 See 15 U.S.C. 78fff–2(f). 161 To facilitate their customer business and to finance their proprietary trading activities, brokerdealers often enter into short-term borrowing arrangements, including repurchase and securities lending agreements. Such financing arrangements can have maturities as short as a day, requiring broker-dealers to continuously refinance their positions. Broker-dealers are therefore subject to liquidity risk in the event that short-term lenders and counterparties refuse to finance their positions or seek less favorable terms for the broker-dealer, such as higher haircuts on collateral. Doubts about a broker-dealer’s viability can lead a broker-dealer’s customers to move their accounts from the brokerdealer, placing additional strains upon the brokerdealer’s liquidity position. Such doubts can, in turn, lead to a general ‘‘run’’ against the brokerdealer, both in its secured financing activities and withdrawals of customer accounts. The ability of the Corporation under Title II to provide financing to the broker-dealer and to allow the broker-dealer to continue its operations may help to address the liquidity stress at the broker-dealer and reduce the potential risk to other market participants. 162 Under a SIPA liquidation, the Commission is authorized to make loans to SIPC should SIPC lack sufficient funds. In addition, to fund these loans, jstallworth on DSK7TPTVN1PROD with PROPOSALS 157 See VerDate Sep<11>2014 13:19 Mar 01, 2016 Jkt 238001 of an orderly liquidation under Title II, the FDIC is appointed the receiver of the broker-dealer and SIPC is appointed as the trustee for the liquidation process. The FDIC is given the authority to form and fund a bridge broker-dealer,163 which would facilitate a quick transfer of customer accounts to a solvent broker-dealer and therefore would accelerate reinstated access to customer accounts.164 By granting the FDIC the ability to transfer any asset or liability to the bridge broker-dealer as it deems necessary, the orderly liquidation proceeding allows the Corporation to extend relief to certain creditors to reduce the destabilizing effects these creditors may cause if they run on a large broker-dealer.165 To further reduce the run risk the failed broker-dealer may be facing, Title II imposes an automatic one-business day stay on certain activities by the counterparties to QFCs, so as to provide the FDIC an opportunity to inform counterparties that the covered broker-dealer’s liabilities were transferred to and assumed by the bridge broker-dealer.166 The proposed rule is designed to implement the provisions of section 205, so that an orderly liquidation can be carried out for certain broker-dealers with efficiency and the intended benefits of orderly liquidation, as established by the Dodd-Frank Act, on the overall economy can be realized. Specifically, the proposed rule implements the framework for the liquidation of covered broker-dealers. The framework includes definitions for the key terms such as customer, customer property, customer name securities, net equity, and bridge brokerdealer. It sets forth three major processes regarding the orderly liquidation—the process of initiating the orderly liquidation (including the appointment of receiver and trustee and the notice and application for protective decree), the process of account transfers to the bridge broker-dealer, and the claims process for customers and other creditors. While establishing orderly liquidation generally, section 205 does not specifically provide the details of such processes. the Commission is authorized to borrow up to $2.5 billion from the U.S. Treasury. See 15 U.S.C. 78ddd(g) and (h). 163 See §§ 380.63 and 302.103, as proposed (regarding the FDIC’s power to ‘‘organize one or more bridge brokers or dealers with respect to a covered broker or dealer’’). 164 See Section II.D.2 on the FDIC’s power to transfer accounts to bridge broker-dealer. 165 See Section II.E on the claims of customers and other creditors of a covered broker-dealer. 166 See Section II.F on the additional proposed sections that relate to qualified financial contracts. PO 00000 Frm 00030 Fmt 4702 Sfmt 4702 10809 The proposed rule provides several clarifications to the provisions in the statute. For example, under Title II, the FDIC has authority to transfer any assets without obtaining any approval, assignment, or consents.167 The proposed rule further provides that the transfer to a bridge broker-dealer of any account, property or asset is not determinative of customer status, nor that the property so transferred qualifies as customer property or customer name securities.168 The proposed rule also provides clarifications on terms such as the venue for filing the application for a protective decree and the filing date.169 In addition, the proposed rule clarifies the process for transferring assets to the bridge broker-dealer, which should help expedite customer access to their respective accounts. For example, the proposed rule provides that allocations to customer accounts at the bridge broker-dealer may initially be derived from estimates based upon the books and records of the covered brokerdealer or other information deemed relevant by the Corporation in consultation with SIPC.170 This means that customers may potentially access their accounts more expeditiously, before the time-consuming record reconciliation process concludes. Therefore, overall, the Commission and the Corporation preliminarily believe that the primary benefit of the proposed rule is to codify additional details regarding the process for the orderly liquidation of covered brokerdealers, which will provide additional structure and enable consistent application of the process. Importantly, the proposed rule does not affect the set of options available to the Commission and the Corporation upon failure of a covered broker-dealer, nor does it affect the range of possible outcomes. In the absence of the proposed rule, the Commission, the Board and the Secretary 171 could still determine that an orderly liquidation under Title II is appropriate, and the FDIC would still have broad authority to establish a bridge broker-dealer and transfer all assets and liabilities held by the failed entity. However, in the absence of the proposed rule, uncertainty could arise regarding the definitions (e.g., the applicable filing date or the nature of the application for a protective decree) and the claims process, which could 167 See §§ 380.63 and 302.103, as proposed. determinations would be made by SIPC in accordance with SIPA. See §§ 380.64(a)(1) and 302.104, as proposed 169 See §§ 380.62 and 302.102, as proposed. 170 See §§ 380.63(d) and 302.103(d), as proposed. 171 See 12 U.S.C. 5383(a)(1)(B). 168 These E:\FR\FM\02MRP1.SGM 02MRP1 10810 Federal Register / Vol. 81, No. 41 / Wednesday, March 2, 2016 / Proposed Rules cause delays in the process and undermine the goals of the statute. By establishing a uniform process for the orderly resolution of a broker-dealer, the proposed rule should improve the orderly liquidation process while implementing the statutory requirements, so that orderly liquidations can be carried out with efficiency and predictability. Such efficiency and predictability should generally ease implementation burdens and conserve resources that otherwise would have to be expended resolving delays in the claims process or in connection with any potential litigation that could arise from delays. The discussion below elaborates on the likely costs and benefits of the proposed rule and its potential impact on efficiency, competition and capital formation, as well as potential alternatives. jstallworth on DSK7TPTVN1PROD with PROPOSALS B. Economic Baseline To assess the economic impact of the proposed rule, the Commission and the Corporation are using section 205 of the Dodd-Frank Act as the economic baseline. Section 205 sets forth provisions specific to the orderly liquidation of certain large brokerdealers and paragraph (h) directs the Commission and the Corporation, in consultation with SIPC, jointly to issue rules to fully implement the section.172 Although no implementing rules are in place, section 205 of the Dodd-Frank Act was self-effectuating, meaning that the statutory requirements are in effect. Therefore, the appropriate baseline is the orderly liquidation authority in place pursuant to section 205, without any implementation rules issued by the Agencies. As outlined in Title II of the Dodd-Frank Act, irrespective of how the broker-dealer was placed into a Title II resolution, section 205 regarding the liquidation of broker-dealers and the proposed rule (if adopted) would always apply to the covered broker-dealer even if section 210 is invoked. 1. SIPC’s Role Section 205 provides that upon the appointment of the FDIC as receiver for a covered broker-dealer, the FDIC shall appoint SIPC as trustee for the liquidation of the covered broker-dealer under SIPA without need for any approval.173 Upon its appointment as trustee, SIPC shall promptly file with a federal district court an application for protective decree, the terms of which will jointly be determined by SIPC and the Corporation, in consultation with 172 12 173 12 U.S.C. 5385(h). U.S.C. 5385(a). VerDate Sep<11>2014 13:19 Mar 01, 2016 Jkt 238001 the Commission.174 Section 205 also provides that SIPC shall have all of the powers and duties provided by SIPA, except with respect to assets and liabilities transferred to the bridge broker-dealer.175 The determination of claims and the liquidation of assets retained in the receivership of the covered broker-dealer and not transferred to the bridge financial company shall be administered under SIPA.176 2. The Corporation’s Power to Establish Bridge Broker-Dealers Section 205 of the Dodd-Frank Act does not contain specific provisions regarding bridge broker-dealers. However, section 210 of the Dodd-Frank Act provides that, in connection with an orderly liquidation, the FDIC has the power to form one or more bridge financial companies, which includes the power to form bridge broker-dealers with respect to a covered brokerdealer.177 Under Title II, the FDIC has the authority to transfer any asset or liability held by the covered financial company without obtaining any approval, assignment, or consent with respect to such transfer.178 It is further provided that any customer of a covered broker-dealer whose account is transferred to a bridge financial company shall have all rights and privileges under section 205(f) of the Dodd-Frank Act and SIPA that such customer would have had if the account was not transferred.179 3. Satisfaction of Customer Claims Section 205(f) of the Dodd-Frank Act requires that all obligations of a covered broker-dealer or bridge broker-dealer to a customer relating to, or net equity claims based on, customer property or customer name securities must be promptly discharged in a manner and in an amount at least as beneficial to the customer as would have been the case had the broker-dealer been liquidated in a SIPA proceeding. 174 See 12 U.S.C. 5385(a)(2). U.S.C. 5385. See also §§ 380.64(a) and 302.104(a), as proposed (regarding SIPC’s role as trustee). 176 Id. 177 See 12 U.S.C. 5390(h)(1)(A). See also 12 U.S.C. 5390(h)(2)(H). 178 12 U.S.C. 5390(a)(1)(G). 179 See 12 U.S.C. 5390(h)(2)(H)(iii). 175 12 PO 00000 Frm 00031 Fmt 4702 Sfmt 4702 C. Benefits, Costs and Effects on Efficiency, Competition, and Capital Formation 1. Anticipated Benefits a. Overall Benefits The key benefit of the proposed rule is that it creates a more structured framework to implement section 205 of the Dodd-Frank Act, so that the orderly liquidation of a covered broker-dealer can be carried out with efficiency and predictability if the need arises. As discussed in the economic baseline, section 205 provides parameters for the orderly liquidation of covered brokerdealers, while the proposed rule implements these statutory parameters. The proposed rule first provides definitions for certain key terms including customer, customer property, customer name securities, net equity, and bridge broker-dealer, among others.180 It then sets forth three major processes regarding the orderly liquidation: the process of initiating the orderly liquidation,181 the process of account transfers to the bridge brokerdealer,182 and the claims process for customers and other creditors.183 First, besides incorporating the statutory requirement of appointing SIPC as the trustee for covered brokerdealers, the proposed rule provides a more detailed process for notice and application for protective decree. It provides clarification for the venue in which the notice and application for a decree is to be filed.184 It clarifies the definition of the filing date if the notice and application is filed on a date other than the appointment date.185 And finally, it also includes a non-exclusive list of notices drawn from other parts of Title II to inform the relevant parties of the initiation of the orderly liquidation process and what they should expect.186 Second, the proposed rule sets forth the process to establish one or more bridge broker-dealers and to transfer accounts, property, and other assets held by a covered broker-dealer to such bridge broker-dealers, pursuant to Title II of Dodd-Frank Act.187 Section 205 of the Act does not specifically provide for such a process. The proposed rule specifies that the Corporation may transfer any account, property, or asset held by a covered broker-dealer 180 See §§ 380.60 and 302.100, as proposed. §§ 380.61, 380.62, 302.101 and 302.102, as proposed. 182 See §§ 380.63 and 302.103, as proposed. 183 See §§ 380.64 and 302.104, as proposed. 184 See §§ 380.62(a) and 302.102, as proposed. 185 Id. 186 See §§ 380.62(b) and 302.102(b), as proposed. 187 See §§ 380.63 and 302.103, as proposed. 181 See E:\FR\FM\02MRP1.SGM 02MRP1 jstallworth on DSK7TPTVN1PROD with PROPOSALS Federal Register / Vol. 81, No. 41 / Wednesday, March 2, 2016 / Proposed Rules (including customer and non-customer accounts, property and assets) to a bridge broker-dealer as the Corporation deems necessary, based on the FDIC’s authority under Title II to transfer any assets without obtaining any approval, assignment, or consents.188 The transfer to a bridge broker-dealer of any account, property or asset is not determinative of customer status.189 The determinations of customer status are to be made by SIPC as trustee in accordance with SIPA.190 As discussed above, given the preferred status of customers, litigation has been brought on customer status under SIPA (e.g., repo counterparties’ claims of customer status under SIPA).191 Since the Corporation may transfer both customer and noncustomer accounts, property and assets held by a covered broker-dealer to a bridge broker-dealer according to the statute, in the absence of the proposed rule, some non-customer creditors may mistakenly interpret under the baseline scenario that such a transfer confers customer status (especially since in a SIPA proceeding only customer assets are transferred). To the extent that such mistaken beliefs may arise from the statutory provisions, litigation over customer status could arise. The clarification in the proposed rule stresses that customer status is determined by SIPC separately from the decision to transfer an asset to a bridge broker-dealer, and could thus help prevent confusion concerning whether other creditors whose assets have also been transferred should be treated as customers. This clarification may mitigate a potential increase in litigation costs, although the economic benefit of such mitigation is likely to be de minimis. Regarding the account transfers to bridge broker-dealers, in addition to the provisions on the specifics of a transfer (e.g., the calculation of customer net equity, the assumption of the net equity claim by the bridge broker-dealer and the allocation of customer property), the proposed rule further provides that allocations to customer accounts at the bridge broker-dealer may initially be derived from estimates based upon the books and records of the covered brokerdealer or other information deemed relevant by the Corporation in consultation with SIPC.192 Given that it could be time-consuming to reconcile the broker-dealer’s records with the 188 See §§ 380.63(e) and 302.103(e), as proposed. §§ 380.64(a) and 302.104(a), as proposed. 190 See §§ 380.64(a) and 302.104(a) as proposed. 191 See, e.g., In re Lehman Brothers Inc., 492 B.R. 379 (Bankr. S.D.N.Y. 2013), aff’d, 506 B.R. 346. 192 See §§ 380.63(d) and 302.103(d), as proposed. 189 See VerDate Sep<11>2014 13:19 Mar 01, 2016 Jkt 238001 records of other parties, this provision may speed up the allocation of customer property to the customer accounts at the bridge broker-dealer, thus providing customers quicker access to their accounts. Third, the proposed rule also addresses the claims process for customers and other creditors.193 The proposed rule implements the statute’s requirement that the trustee’s allocation shall be in an amount and manner, including form and timing, at least as beneficial as such customer would have received under a SIPA proceeding, as required by section 205(f).194 In addition, it further addresses certain procedural aspects of the claims determination process, such as the publication and mailing of notices to creditors, the notice of the appointment of the FDIC and SIPC, the claims bar date, and expedited relief. In summary, the proposed rule would provide interested parties with details on the implementation of the orderly liquidation process. By providing for a uniform process, the proposed rule could improve the orderly liquidation process, so that the orderly liquidation can be carried out with efficiency and predictability. Under the baseline scenario, in absence of the proposed rule, uncertainty may arise because various parties may interpret the statutory requirements differently. For example, under the baseline, the repo counterparties of the broker-dealer may not understand that the transfer of the rights and obligations under their contracts to the bridge broker-dealer is not determinative of customer status, because such a transfer to another broker-dealer is only available for customers under a SIPA proceeding. That is, repo counterparties of the broker-dealer may mistakenly believe that the transfer of rights and obligations implies customer status. Accordingly, the proposed rule provides that the transfer of accounts to a bridge brokerdealer is not determinative of customer status, and that such status is determined by SIPC in accordance with SIPA. Uncertainty regarding such matters could result in litigation and delays in the claims process if orderly liquidation were to be commenced with respect to a covered broker-dealer; therefore, the structure provided by the proposed rule could conserve resources that otherwise would have to be expended in settling such litigation and resolving delays that may arise, and create a more efficient process for 193 See §§ 380.64 and 302.104, as proposed. §§ 380.64(a)(4) and 302.104(a)(4), as proposed. 194 See PO 00000 Frm 00032 Fmt 4702 Sfmt 4702 10811 enabling orderly liquidation. Moreover, under the baseline scenario, uncertainties about process and how customer and creditor claims would be handled could continue to encourage these claimants to reduce exposure if doubts about a broker-dealer’s viability arise—for customers, by withdrawing free credit balances; for creditors, by reducing repo and derivatives exposure. Such uncertainties, if they were to persist, could undermine the broader benefits that orderly liquidation could provide to financial stability. In this sense, the processes set forth by the proposed rule could help realize the economic benefits of section 205. b. Benefits to Affected Parties The Commission and the Corporation believe that the proposed rule provides benefits comparable to those under the baseline scenario to relevant parties such as customers, creditors, and counterparties. To the extent that it provides additional guidance on procedural matters, the proposed rule may reduce potential uncertainty, thereby providing for an efficient and predictable orderly liquidation process. Therefore, the Commission and the Corporation preliminarily believe the proposed rule will improve the orderly liquidation process and provide benefits beyond the statute, although such benefits are likely to be incremental. The Commission and the Corporation preliminarily believe that the proposed rule will be beneficial to customers.195 The proposed rule states that the bridge broker-dealer will undertake the obligations of a covered broker-dealer with respect to each person holding an account transferred to the bridge brokerdealer, providing customers with transferred accounts assurance that they will receive the same legal protection and status as a customer of a brokerdealer that is subject to a liquidation outside of Title II.196 Further, under the proposed rule, the transfer of noncustomer assets to a bridge broker-dealer would not imply customer status for these assets, which could thereby reduce any incentive to not move assets based upon fears of prejudging customer status. Finally, the proposed rule would provide that allocations to customer accounts at the bridge broker-dealer may initially be derived from estimates based on the books and records of the covered broker-dealer.197 This provision could 195 See Section II.D.1 discussing the preferred status of customer claims. See also §§ 380.65(a)(1) and 302.105(a)(1), as proposed (explaining that ‘‘SIPC . . . shall determine customer status . . .’’). 196 See §§ 380.63(d) and 302.103(d), as proposed. 197 See §§ 380.63(d) and 302.103(d), as proposed. E:\FR\FM\02MRP1.SGM 02MRP1 10812 Federal Register / Vol. 81, No. 41 / Wednesday, March 2, 2016 / Proposed Rules help facilitate expedited customer access to their respective accounts, as customers would not have to wait for a final reconciliation of the brokerdealer’s records with other parties’ records.198 The Commission preliminarily believes the proposed rule will yield benefits to both secured and unsecured creditors, as it clarifies the manner in which creditor claims could be transferred to a bridge broker-dealer. Creditors thus could potentially receive benefits from financing provided by the Corporation to the bridge broker-dealer. 2. Anticipated Costs While the proposed rule is designed to ensure that an orderly liquidation under Title II would be at least as beneficial to customers as would be the case in a SIPA liquidation, orderly liquidation does entail different treatment of QFC counterparties. Under SIPA, certain QFC counterparties may exercise specified contractual rights regardless of an automatic stay.199 In contrast, Title II imposes an automatic one-day stay on certain activities by QFC counterparties,200 which may limit the ability of these counterparties to terminate contracts or exercise any rights against collateral. As proposed, the stay would remain in effect if the QFC contracts are transferred to a bridge broker-dealer. While these provisions may impose costs, they are a consequence of the statute and are already in effect. In addition, as discussed above, the proposed rule could benefit customers by allowing the allocations to customer accounts at the bridge broker-dealer to be derived from estimates based on the jstallworth on DSK7TPTVN1PROD with PROPOSALS 198 See §§ 380.63(e) and 302.103(e), as proposed. See also 15 U.S.C. 78eee(b)(2)(C)(i) and (ii). 199 See 15 U.S.C. 78eee(b)(2)(C)(i) through (ii). See also Letter from Michael E. Don, Deputy General Counsel of SIPC to Robert A. Portnoy, Deputy Executive Director and General Counsel of the Public Securities Association, dated February 4, 1986 (repurchase agreements); Letter from Michael E. Don to J. Eugene Marans, Cleary, Gottlieb, Steen & Hamilton, dated August 29, 1988 (securities lending transactions); Letter from Michael E. Don to James D. McLaughlin, Director of the American Bankers Association, dated October 30, 1990 (securities lending transactions secured by cash collateral or supported by letters of credit); Letter from Michael E. Don to John G. Macfarlane, III, Chairman, Repo Committee, Public Securities Association, dated February 19, 1991 (securities lending transactions secured by cash collateral or supported by letters of credit); Letter from Michael E. Don, President of SIPC to Seth Grosshandler, Cleary, Gottlieb, Steen & Hamilton, dated February 14, 1996 (repurchase agreements falling outside the Code definition of ‘‘repurchase agreement’’); and Letter from Michael E. Don to Omer Oztan, Vice President and Assistant General Counsel of the Bond Market Association, dated June 25, 2002 (repurchase agreements). 200 See §§ 380.67 and 302.107, as proposed. VerDate Sep<11>2014 13:19 Mar 01, 2016 Jkt 238001 books and records of the covered brokerdealer. Such a process may accelerate customers’ access to their accounts, as they would not have to wait for a final account reconciliation to access their accounts. As provided for in the proposed rule, the calculation of allocations of customer property to customer accounts would be refined as additional information becomes available. The Commission and the Corporation preliminarily believe that initial allocations will be made conservatively, which with the backstop of the availability of SIPC advances to customers in accordance with the requirements of SIPA, should minimize the possibility of an over-allocation to any customer. To the extent that initial estimates are excessive, it is possible that customer funds may need to be reallocated after customers initially gain access to their accounts, which could result in costs for customers. Essentially, the proposed rule trades off expedited access to customer funds with the possibility of subsequent reallocation. We currently lack data concerning the impact or costs that might be associated with this possibility. The costs associated with all of these factors may vary significantly depending on broker-dealer systems and the specific events. For these reasons, we are unable to quantify the costs associated with these factors at this time. However, as noted above, the Commission and the Corporation preliminarily believe initial allocations will be made conservatively, which would minimize the possibility of an over-allocation to any customer and mitigate potential costs and uncertainty associated with allocation refinements. 3. Effects on Efficiency, Competition, and Capital Formation The Commission and the Corporation have preliminarily assessed the effects arising from the proposed rule on efficiency, competition, and capital formation. As discussed above, the Agencies preliminarily believe the primary economic benefit of the proposed rule will be that it provides details to implement section 205 of the Dodd-Frank Act, so that the orderly liquidation of a covered broker-dealer can be carried out with greater efficiency and predictability if the need arises. This structure could reduce uncertainty about treatment of customer and creditor claims in an orderly liquidation, conserving resources and creating a more efficient process relative to orderly liquidation under the baseline. In addition, uncertainty about treatment of claims could encourage customers and creditors to reduce PO 00000 Frm 00033 Fmt 4702 Sfmt 4702 exposure to a broker-dealer facing financial distress, exacerbating liquidity problems. By reducing uncertainty, the proposed rule may reduce incentives for claimants to rush to reduce exposures. In such a scenario, broker-dealers may find it easier to recover from moderate financial distress and to sustain a sufficient capital position to provide financial intermediation services. Furthermore, for sufficiently large broker-dealers with many creditor and counterparty relationships throughout the financial system, positive perceptions about the ability of those broker-dealers to recover from moderate financial distress may stave off aggregate financial sector runs, and thus preserve financial sector capital and the availability of financial intermediation services. Beyond these identified potential effects, the Commission and the Corporation preliminarily believe that the additional effects of the proposed rule on efficiency, competition, and capital formation will be linked to the existence of an orderly liquidation process itself, which is part of the baseline, and is an option available to regulatory authorities today. Our analysis of the effects of an orderly liquidation process on efficiency, competition, and capital formation focuses on those effects that derive from the process and structure created by the proposed rule, but not those that are due to the underlying statute, which is part of the economic baseline. By establishing a structured framework, the proposed rule sets clearer expectations for relevant parties, and therefore could help reduce potential uncertainty and contribute to market efficiency and liquidity as described above. Relative to the baseline scenario, where orderly liquidation exists as an option for regulatory authorities but without the framework provided in the proposed rule, having a structured process in place as a response to a potential crisis could also allow broker-dealers to more readily attract funding, thus facilitating capital formation. D. Alternatives Considered As described above, Title II of the Dodd-Frank Act establishes a process by which a covered broker-dealer would be placed into orderly liquidation. Furthermore, orderly liquidation is available as an option to regulators today, and the proposed rule does not affect the set of options available to the Commission and the Corporation, nor does it affect the range of possible outcomes. As an alternative to this proposed rule, the Commission and the Corporation could rely on statutory E:\FR\FM\02MRP1.SGM 02MRP1 Federal Register / Vol. 81, No. 41 / Wednesday, March 2, 2016 / Proposed Rules provisions alone to achieve similar outcomes. However, the Commission and the Corporation preliminarily believe that relying on the statute alone, without a rule implementing section 205 of the Dodd-Frank Act, would result in orderly liquidations, if any, that are less efficient and less predictable, and that would fail to achieve the benefits of the proposed rule described above. In particular, the absence of the provisions of the proposed rule outlining the process for notice and application for a protective decree, the process for establishing a bridge broker-dealer, and the process governing the transfer of accounts, property, and other assets held by the covered broker-dealer to the bridge broker-dealer, could lead to inconsistent application of the statutory provisions. Such inconsistency could cause delays in the liquidation process and increase the likelihood of litigation over issues such as customer status, increasing costs for customers and creditors without corresponding benefits. E. Request for Comment In addition to the general requests for comment, the Commission and the Corporation request comment with respect to the following specific questions: 1. As an alternative to the proposed rule, should the Commission and the Corporation instead rely on the statute alone to implement orderly liquidations of covered broker-dealers? Why? 2. Are there additional alternative processes to implement section 205 of the Dodd-Frank Act that the Commission and the Corporation should consider? If so, what are they and what would be the associated costs or benefits of these alternative approaches? jstallworth on DSK7TPTVN1PROD with PROPOSALS VI. Regulatory Analysis and Procedures A. Regulatory Flexibility Act Analysis The Regulatory Flexibility Act (‘‘RFA’’) 201 requires an agency publishing a notice of proposed rulemaking to prepare and make available for public comment a regulatory flexibility analysis that describes the impact of the proposed rule on small entities.202 The RFA provides that an agency is not required to prepare and publish a regulatory flexibility analysis if the agency certifies that the proposed rule will not have a significant economic impact on a substantial number of small entities.203 Pursuant to section 605(b) of the RFA, the Agencies certify that the proposed U.S.C. 601 et seq. U.S.C. 603(a). 203 5 U.S.C. 605(b). rule, if adopted, will not have a significant economic impact on a substantial number of small entities. Under Small Business Administration size standards defining small entities, broker-dealers are generally considered small entities if their annual receipts do not exceed $38.5 million.204 If adopted, the proposed rule will clarify rules and procedures for the orderly liquidation of a covered broker-dealer under Title II of the Dodd-Frank Act. A covered brokerdealer is a broker-dealer that is subject to a systemic risk determination by the Secretary pursuant to section 203 of the Dodd-Frank Act, 12 U.S.C. 5383, and thereafter is to be liquidated under Title II of the Dodd-Frank Act. The Agencies do not believe that a broker-dealer that would be considered a small entity for purposes of the RFA would ever be the subject of a systemic risk determination by the Secretary. Therefore, the Agencies are not aware of any small entities that would be affected by the proposed rule. As such, the proposed rule, if adopted, would not affect, and would impose no burdens on, small entities. B. The Treasury and General Government Appropriations Act, 1999— Assessment of Federal Regulations and Policies on Families The FDIC has determined that the proposed rule will not affect family well-being within the meaning of section 654 of the Treasury and General Government Appropriations Act, enacted as part of the Omnibus Consolidated and Emergency Supplemental Appropriations Act of 1999.205 C. Plain Language Section 722 of the Gramm-LeachBliley Act 206 requires federal banking agencies to use plain language in all proposed and final rules published after January 1, 2000. The FDIC has sought to present the proposed rule in a simple and straightforward manner but nevertheless invites comment on whether the proposal is clearly stated and effectively organized, and how the Agencies might make the proposed text easier to understand. VII. Consideration of Impact on the Economy For purposes of the Small Business Regulatory Enforcement Fairness Act of 1996 (‘‘SBREFA’’), the Commission and the Corporation request comment on the potential effect of the proposed rule on 201 5 204 13 202 5 205 Public VerDate Sep<11>2014 13:19 Mar 01, 2016 CFR 121.201. Law 105–277, 112 Stat. 2681. 206 Public Law 106–102, 113 Stat. 1338, 1471. Jkt 238001 PO 00000 Frm 00034 Fmt 4702 Sfmt 4702 10813 the United States economy on an annual basis. The Commission and the Corporation also request comment on any potential increases in costs or prices for consumers or individual industries, and any potential effect on competition, investment, or innovation based on the proposed rule. Commenters are requested to provide empirical data and other factual support for their views to the extent possible. VIII. Statutory Authority The proposed rule is being promulgated pursuant to section 205(h) of the Dodd-Frank Act. Section 205(h) of the Act requires the Corporation and the Commission, in consultation with SIPC, jointly to issue rules to implement section 205 of the Act concerning the orderly liquidation of covered brokerdealers. List of Subjects 12 CFR Part 380 Bankruptcy, Brokers, Claims, Customers, Dealers, Financial companies, Orderly liquidation. 17 CFR Part 302 Brokers, Claims, Customers, Dealers, Financial companies, Orderly liquidation. Federal Deposit Insurance Corporation 12 CFR Part 380 Authority and Issuance For the reasons stated in the preamble, the Federal Deposit Insurance Corporation proposes to amend 12 CFR part 380 as follows: PART 380—ORDERLY LIQUIDATION AUTHORITY 1. The authority citation for part 380 is revised to read as follows: ■ Authority: 12 U.S.C. 5385(h); 12 U.S.C. 5389; 12 U.S.C. 5390(s)(3); 12 U.S.C. 5390(b)(1)(C); 12 U.S.C. 5390(a)(7)(D); 12 U.S.C. 5381(b), 12 U.S.C. 5390(r). ■ 2. Add subpart D to read as follows: Subpart D—Orderly Liquidation of Covered Brokers or Dealers Sec. 380.60 Definitions. 380.61 Appointment of receiver and trustee for covered broker or dealer. 380.62 Notice and application for protective decree for covered broker or dealer. 380.63 Bridge broker or dealer. 380.64 Claims of customers and other creditors of a covered broker or dealer. 380.65 Priorities for unsecured claims against a covered broker or dealer. 380.66 Administrative expenses of SIPC. 380.67 Qualified financial contracts. E:\FR\FM\02MRP1.SGM 02MRP1 10814 jstallworth on DSK7TPTVN1PROD with PROPOSALS § 380.60 Federal Register / Vol. 81, No. 41 / Wednesday, March 2, 2016 / Proposed Rules Definitions. For purposes of this subpart D, the following terms shall have the following meanings: (a) Appointment date. The term appointment date means the date of the appointment of the Corporation as receiver for a covered financial company that is a covered broker or dealer. This date shall constitute the filing date as that term is used in SIPA. (b) Bridge broker or dealer. The term bridge broker or dealer means a new financial company organized by the Corporation in accordance with 12 U.S.C. 5390(h) for the purpose of resolving a covered broker or dealer. (c) Commission. The term Commission means the Securities and Exchange Commission. (d) Covered broker or dealer. The term covered broker or dealer means a covered financial company that is a qualified broker or dealer. (e) Customer. The term customer of a covered broker or dealer shall have the same meaning as in 15 U.S.C. 78lll(2) provided that the references therein to debtor shall mean the covered broker or dealer. (f) Customer name securities. The term customer name securities shall have the same meaning as in 15 U.S.C. 78lll(3) provided that the references therein to debtor shall mean the covered broker or dealer and the references therein to filing date shall mean the appointment date. (g) Customer property. The term customer property shall have the same meaning as in 15 U.S.C. 78lll(4) provided that the references therein to debtor shall mean the covered broker or dealer. (h) Net equity. The term net equity shall have the same meaning as in 15 U.S.C. 78lll(11) provided that the references therein to debtor shall mean the covered broker or dealer and the references therein to filing date shall mean the appointment date. (i) Qualified broker or dealer. The term qualified broker or dealer means a broker or dealer that: (1) Is registered with the Commission under section 15(b) of the Securities Exchange Act of 1934 (15 U.S.C. 78o(b)); and (2) Is a member of SIPC. (j) SIPA. The term SIPA means the Securities Investor Protection Act of 1970, 15 U.S.C. 78aaa–lll. (k) SIPC. The term SIPC means the Securities Investor Protection Corporation. § 380.61 Appointment of receiver and trustee for covered broker or dealer. Upon the appointment of the Corporation as receiver for a covered VerDate Sep<11>2014 13:19 Mar 01, 2016 Jkt 238001 broker or dealer, the Corporation shall appoint SIPC to act as trustee for the covered broker or dealer. § 380.62 Notice and application for protective decree for covered broker or dealer. (a) SIPC and the Corporation, upon consultation with the Commission, shall jointly determine the terms of a notice and application for a protective decree that will be filed promptly with the Federal district court for the district within which the principal place of business of the covered broker or dealer is located; provided that if a case or proceeding under SIPA with respect to such covered broker or dealer is then pending, then such notice and application for a protective decree will be filed promptly with the Federal district court in which such case or proceeding under SIPA is pending. If such notice and application for a protective decree is filed on a date other than the appointment date, such filing shall be deemed to have occurred on the appointment date for the purposes of this subpart D. (b) A notice and application for a protective decree may, among other things, provide for notice— (1) Of the appointment of the Corporation as receiver and the appointment of SIPC as trustee for the covered broker or dealer; and (2) That the provisions of Title II of the Dodd-Frank Act and any regulations promulgated thereunder may apply, including without limitation the following: (i) Any existing case or proceeding with respect to a covered broker or dealer under the Bankruptcy Code or SIPA shall be dismissed effective as of the appointment date and no such case or proceeding may be commenced with respect to a covered broker or dealer at any time while the Corporation is receiver for such covered broker or dealer; (ii) The revesting of assets in a covered broker or dealer to the extent that they have vested in any entity other than the covered broker or dealer as a result of any case or proceeding commenced with respect to the covered broker or dealer under the Bankruptcy Code, SIPA, or any similar provision of State liquidation or insolvency law applicable to the covered broker or dealer; provided that any such revesting shall not apply to assets held by the covered broker or dealer, including customer property, transferred prior to the appointment date pursuant to an order entered by the bankruptcy court presiding over the case or proceeding PO 00000 Frm 00035 Fmt 4702 Sfmt 4702 with respect to the covered broker or dealer; (iii) The request of the Corporation as receiver for a stay in any judicial action or proceeding (other than actions dismissed in accordance with paragraph (b)(2)(i) of this section) in which the covered broker or dealer is or becomes a party for a period of up to 90 days from the appointment date; (iv) Except as provided in paragraph (b)(2)(v) of this section with respect to qualified financial contracts, no person may exercise any right or power to terminate, accelerate or declare a default under any contract to which the covered broker or dealer is a party (and no provision in any such contract providing for such default, termination or acceleration shall be enforceable), or to obtain possession of or exercise control over any property of the covered broker or dealer or affect any contractual rights of the covered broker or dealer without the consent of the Corporation as receiver of the covered broker or dealer upon consultation with SIPC during the 90-day period beginning from the appointment date; and (v) The exercise of rights and the performance of obligations by parties to qualified financial contracts with the covered broker or dealer may be affected, stayed, or delayed pursuant to the provisions of Title II of the DoddFrank Act (including 12 U.S.C. 5390(c)) and the regulations promulgated thereunder. § 380.63 Bridge broker or dealer. (a) The Corporation, as receiver for one or more covered brokers or dealers or in anticipation of being appointed receiver for one or more covered broker or dealers, may organize one or more bridge brokers or dealers with respect to a covered broker or dealer. (b) If the Corporation establishes one or more bridge brokers or dealers with respect to a covered broker or dealer, then, subject to paragraph (d) of this section, the Corporation as receiver for such covered broker or dealer shall transfer all customer accounts and all associated customer name securities and customer property to such bridge brokers or dealers unless the Corporation determines, after consultation with the Commission and SIPC, that: (1) The customer accounts, customer name securities, and customer property are likely to be promptly transferred to one or more qualified brokers or dealers such that the use of a bridge broker or dealer would not facilitate such transfer to one or more qualified brokers or dealers; or E:\FR\FM\02MRP1.SGM 02MRP1 jstallworth on DSK7TPTVN1PROD with PROPOSALS Federal Register / Vol. 81, No. 41 / Wednesday, March 2, 2016 / Proposed Rules (2) The transfer of such customer accounts to a bridge broker or dealer would materially interfere with the ability of the Corporation to avoid or mitigate serious adverse effects on financial stability or economic conditions in the United States. (c) The Corporation, as receiver for such covered broker or dealer, also may transfer any other assets and liabilities of the covered broker or dealer (including non-customer accounts and any associated property and any assets and liabilities associated with any trust or custody business) to such bridge brokers or dealers as the Corporation may, in its discretion, determine to be appropriate in accordance with, and subject to the requirements of, 12 U.S.C. 5390(h), including 12 U.S.C. 5390(h)(1) and 5390(h)(5), and any regulations promulgated thereunder. (d) In connection with customer accounts transferred to the bridge broker or dealer pursuant to paragraph (b) of this section, claims for net equity shall not be transferred but shall remain with the covered broker or dealer. Customer property transferred from the covered broker or dealer, along with advances from SIPC, shall be allocated to customer accounts at the bridge broker or dealer in accordance with § 380.64(a)(3). Such allocations initially may be based upon estimates, and such estimates may be based upon the books and records of the covered broker or dealer or any other information deemed relevant in the discretion of the Corporation as receiver, in consultation with SIPC, as trustee. Such estimates may be adjusted from time to time as additional information becomes available. With respect to each account transferred to the bridge broker or dealer pursuant to paragraph (b) or (c) of this section, the bridge broker or dealer shall undertake the obligations of a broker or dealer only with respect to property transferred to and held by the bridge broker or dealer, and allocated to the account as provided in § 380.64(a)(3), including any customer property and any advances from SIPC. The bridge broker or dealer shall have no obligations with respect to any customer property or other property that is not transferred from the covered broker or dealer to the bridge broker or dealer. The transfer of customer property to such an account shall have no effect on calculation of the amount of the affected account holder’s net equity, but the value, as of the appointment date, of the customer property and advances from SIPC so transferred shall be deemed to satisfy any such claim, in whole or in part. VerDate Sep<11>2014 13:19 Mar 01, 2016 Jkt 238001 (e) The transfer of assets or liabilities held by a covered broker or dealer, including customer accounts and all associated customer name securities and customer property, assets and liabilities held by a covered broker or dealer for any non-customer creditor, and assets and liabilities associated with any trust or custody business, to a bridge broker or dealer, shall be effective without any consent, authorization, or approval of any person or entity, including but not limited to, any customer, contract party, governmental authority, or court. (f) Any succession to or assumption by a bridge broker or dealer of rights, powers, authorities, or privileges of a covered broker or dealer shall be effective without any consent, authorization, or approval of any person or entity, including but not limited to, any customer, contract party, governmental authority, or court, and any such bridge broker or dealer shall upon its organization by the Corporation immediately and by operation of law— (1) Be established and deemed registered with the Commission under the Securities Exchange Act of 1934; (2) Be deemed to be a member of SIPC; and (3) Succeed to any and all registrations and memberships of the covered broker or dealer with or in any self-regulatory organizations. (g) Except as provided in paragraph (f) of this section, the bridge broker or dealer shall be subject to applicable Federal securities laws and all requirements with respect to being a member of a self-regulatory organization and shall operate in accordance with all such laws and requirements and in accordance with its articles of association; provided, however, that the Commission may, in its discretion, exempt the bridge broker or dealer from any such requirements if the Commission deems such exemption to be necessary or appropriate in the public interest or for the protection of investors. (h) At the end of the term of existence of a bridge broker or dealer, any proceeds that remain after payment of all administrative expenses of such bridge broker or dealer and all other claims against such bridge broker or dealer shall be distributed to the receiver for the related covered broker or dealer. § 380.64 Claims of customers and other creditors of a covered broker or dealer. (a) Trustee’s role. (1) SIPC, as trustee for a covered broker or dealer, shall determine customer status, claims for net equity, claims for customer name PO 00000 Frm 00036 Fmt 4702 Sfmt 4702 10815 securities, and whether property of the covered broker or dealer qualifies as customer property. SIPC, as trustee for a covered broker or dealer, shall make claims determinations in accordance with SIPA and with paragraph (a)(3) of this section, but such determinations, and any claims related thereto, shall be governed by the procedures set forth in paragraph (b) of this section. (2) SIPC shall make advances in accordance with, and subject to the limitations imposed by, 15 U.S.C. 78fff– 3. Where appropriate, SIPC shall make such advances by delivering cash or securities to the customer accounts established at the bridge broker or dealer. (3) Customer property held by a covered broker or dealer shall be allocated as follows: (i) First, to SIPC in repayment of advances made by SIPC pursuant to 12 U.S.C. 5385(f) and 15 U.S.C. 78fff– 3(c)(1), to the extent such advances effected the release of securities which then were apportioned to customer property pursuant to 15 U.S.C. 78fff(d); (ii) Second, to customers of such covered broker or dealer, or in the case that customer accounts are transferred to a bridge broker or dealer, then to such customer accounts at a bridge broker or dealer, who shall share ratably in such customer property on the basis and to the extent of their respective net equities; (iii) Third, to SIPC as subrogee for the claims of customers; and (iv) Fourth, to SIPC in repayment of advances made by SIPC pursuant to 15 U.S.C. 78fff–3(c)(2). (4) The determinations and advances made by SIPC as trustee for a covered broker or dealer under this subpart D shall be made in a manner consistent with SIPC’s customary practices under SIPA. The allocation of customer property, advances from SIPC, and delivery of customer name securities to each customer or to its customer account at a bridge broker or dealer, in partial or complete satisfaction of such customer’s net equity claims as of the close of business on the appointment date, shall be in a manner, including form and timing, and in an amount at least as beneficial to such customer as would have been the case had the covered broker or dealer been liquidated under SIPA. Any claims related to determinations made by SIPC as trustee for a covered broker or dealer shall be governed by the procedures set forth in paragraph (b) of this section. (b) Receiver’s role. Any claim shall be determined in accordance with the procedures set forth in 12 U.S.C. 5390(a)(2) through (5) and the E:\FR\FM\02MRP1.SGM 02MRP1 jstallworth on DSK7TPTVN1PROD with PROPOSALS 10816 Federal Register / Vol. 81, No. 41 / Wednesday, March 2, 2016 / Proposed Rules regulations promulgated by the Corporation thereunder, provided however, that— (1) Notice requirements. The notice of the appointment of the Corporation as receiver for a covered broker or dealer shall also include notice of the appointment of SIPC as trustee. The Corporation as receiver shall coordinate with SIPC as trustee to post the notice on SIPC’s public Web site in addition to the publication procedures set forth in § 380.33. (2) Procedures for filing a claim. The Corporation as receiver shall consult with SIPC, as trustee, regarding a claim form and filing instructions with respect to claims against the Corporation as receiver for a covered broker or dealer, and such information shall be provided on SIPC’s public Web site in addition to the Corporation’s public Web site. Any such claim form shall contain a provision permitting a claimant to claim status as a customer of the broker or dealer, if applicable. (3) Claims bar date. The Corporation as receiver shall establish a claims bar date in accordance with 12 U.S.C. 5390(a)(2)(B)(i) and any regulations promulgated thereunder by which date creditors of a covered broker or dealer, including all customers of the covered broker or dealer, shall present their claims, together with proof. The claims bar date for a covered broker or dealer shall be the date following the expiration of the six-month period beginning on the date a notice to creditors to file their claims is first published in accordance with 12 U.S.C. 5390(a)(2)(B)(i) and any regulations promulgated thereunder. Any claim filed after the claims bar date shall be disallowed, and such disallowance shall be final, as provided by 12 U.S.C. 5390(a)(3)(C)(i) and any regulations promulgated thereunder, except that a claim filed after the claims bar date shall be considered by the receiver as provided by 12 U.S.C. 5390(a)(3)(C)(ii) and any regulations promulgated thereunder. In accordance with section 8(a)(3) of SIPA, 15 U.S.C. 78fff–2(a)(3), any claim for net equity filed more than sixty days after the date the notice to creditors to file claims is first published need not be paid or satisfied in whole or in part out of customer property and, to the extent such claim is paid by funds advanced by SIPC, it shall be satisfied in cash or securities, or both, as SIPC, as trustee, determines is most economical to the receivership estate. (c) Decision period. The Corporation as receiver of a covered broker or dealer shall notify a claimant whether it allows or disallows the claim, or any portion of a claim or any claim of a security, VerDate Sep<11>2014 13:19 Mar 01, 2016 Jkt 238001 preference, set-off, or priority, within the 180-day period set forth in 12 U.S.C. 5390(a)(3)(A) and any regulations promulgated thereunder (as such 180day period may be extended by written agreement as provided therein) or within the 90-day period set forth in 12 U.S.C. 5390(a)(5)(B) and any regulations promulgated thereunder, whichever is applicable. In accordance with paragraph (a) of this section, the Corporation, as receiver, shall issue the notice required by this paragraph (c), which shall utilize the determination made by SIPC, as trustee, in a manner consistent with SIPC’s customary practices in a liquidation under SIPA, with respect to any claim for net equity or customer name securities. The process established herein for the determination, within the 180-day period set forth in 12 U.S.C. 5390(a)(3)(A) and any regulations promulgated thereunder (as such 180day period may be extended by written agreement as provided therein), of claims by customers of a covered broker or dealer for customer property or customer name securities shall constitute the exclusive process for the determination of such claims, and any procedure for expedited relief established pursuant to 12 U.S.C. 5390(a)(5) and any regulations promulgated thereunder shall be inapplicable to such claims. (d) Judicial review. The claimant may seek a judicial determination of any claim disallowed, in whole or in part, by the Corporation as receiver, including any claim disallowed based upon any determination(s) of SIPC as trustee made pursuant to § 380.64(a), by the appropriate district or territorial court of the United States in accordance with 12 U.S.C. 5390(a)(4) or (5), whichever is applicable, and any regulations promulgated thereunder. § 380.65 Priorities for unsecured claims against a covered broker or dealer. Allowed claims not satisfied pursuant to § 380.63(d), including allowed claims for net equity to the extent not satisfied after final allocation of customer property in accordance with § 380.64(a)(3), shall be paid in accordance with the order of priority set forth in § 380.21 subject to the following adjustments: (a) Administrative expenses of SIPC incurred in performing its responsibilities as trustee for a covered broker or dealer shall be included as administrative expenses of the receiver as defined in § 380.22 and shall be paid pro rata with such expenses in accordance with § 380.21(c). PO 00000 Frm 00037 Fmt 4702 Sfmt 4702 (b) Amounts paid by the Corporation to customers or SIPC shall be included as amounts owed to the United States as defined in § 380.23 and shall be paid pro rata with such amounts in accordance with § 380.21(c). (c) Amounts advanced by SIPC for the purpose of satisfying customer claims for net equity shall be paid following the payment of all amounts owed to the United States pursuant to § 380.21(a)(3) but prior to the payment of any other class or priority of claims described in § 380.21(a)(4) through (11). § 380.66 Administrative expenses of SIPC. (a) In carrying out its responsibilities, SIPC, as trustee for a covered broker or dealer, may utilize the services of third parties, including private attorneys, accountants, consultants, advisors, outside experts, and other third party professionals. SIPC shall have an allowed claim for administrative expenses for any amounts paid by SIPC for such services to the extent that such services are available in the private sector, and utilization of such services is practicable, efficient, and cost effective. The term administrative expenses of SIPC includes the costs and expenses of such attorneys, accountants, consultants, advisors, outside experts, and other third party professionals, and other expenses that would be allowable to a third party trustee under 15 U.S.C. 78eee(b)(5)(A), including the costs and expenses of SIPC employees that would be allowable pursuant to 15 U.S.C. 78fff(e). (b) The term administrative expenses of SIPC shall not include advances from SIPC to satisfy customer claims for net equity. § 380.67 Qualified financial contracts. The rights and obligations of any party to a qualified financial contract to which a covered broker or dealer is a party shall be governed exclusively by 12 U.S.C. 5390, including the limitations and restrictions contained in 12 U.S.C. 5390(c)(10)(B), and any regulations promulgated thereunder. Securities and Exchange Commission 17 CFR Part 302 Authority and Issuance For the reasons stated in the proposing release, the Securities and Exchange Commission proposes to amend 17 CFR 302 as follows: ■ 3. Add part 302 to read as follows: PART 302—ORDERLY LIQUIDATION OF COVERED BROKERS OR DEALERS Sec. E:\FR\FM\02MRP1.SGM 02MRP1 Federal Register / Vol. 81, No. 41 / Wednesday, March 2, 2016 / Proposed Rules 302.100 Definitions. 302.101 Appointment of receiver and trustee for covered broker or dealer. 302.102 Notice and application for protective decree for covered broker or dealer. 302.103 Bridge broker or dealer. 302.104 Claims of customers and other creditors of a covered broker or dealer. 302.105 Priorities for unsecured claims against a covered broker or dealer. 302.106 Administrative expenses of SIPC. 302.107 Qualified financial contracts. Authority: 12 U.S.C. 5385(h). jstallworth on DSK7TPTVN1PROD with PROPOSALS § 302.100 Definitions. For purposes of §§ 302.100 through 302.107, the following terms shall have the following meanings: (a) Appointment date. The term appointment date means the date of the appointment of the Corporation as receiver for a covered financial company that is a covered broker or dealer. This date shall constitute the filing date as that term is used in SIPA. (b) Bridge broker or dealer. The term bridge broker or dealer means a new financial company organized by the Corporation in accordance with 12 U.S.C. 5390(h) for the purpose of resolving a covered broker or dealer. (c) Commission. The term Commission means the Securities and Exchange Commission. (d) Covered broker or dealer. The term covered broker or dealer means a covered financial company that is a qualified broker or dealer. (e) Customer. The term customer of a covered broker or dealer shall have the same meaning as in 15 U.S.C. 78lll(2) provided that the references therein to debtor shall mean the covered broker or dealer. (f) Customer name securities. The term customer name securities shall have the same meaning as in 15 U.S.C. 78lll(3) provided that the references therein to debtor shall mean the covered broker or dealer and the references therein to filing date shall mean the appointment date. (g) Customer property. The term customer property shall have the same meaning as in 15 U.S.C. 78lll(4) provided that the references therein to debtor shall mean the covered broker or dealer. (h) Net equity. The term net equity shall have the same meaning as in 15 U.S.C. 78lll(11) provided that the references therein to debtor shall mean the covered broker or dealer and the references therein to filing date shall mean the appointment date. (i) Qualified broker or dealer. The term qualified broker or dealer means a broker or dealer that: (1) Is registered with the Commission under section 15(b) of the Securities VerDate Sep<11>2014 13:19 Mar 01, 2016 Jkt 238001 Exchange Act of 1934 (15 U.S.C. 78o(b)); and (2) Is a member of SIPC. (j) SIPA. The term SIPA means the Securities Investor Protection Act of 1970, 15 U.S.C. 78aaa–lll. (k) SIPC. The term SIPC means the Securities Investor Protection Corporation. (l) Corporation. The term Corporation means the Federal Deposit Insurance Corporation. (m) Dodd-Frank Act. The term DoddFrank Act means the Dodd-Frank Wall Street Reform and Consumer Protection Act, Public Law 111–203, 124 Stat. 1376, enacted July 21, 2010. § 302.101 Appointment of receiver and trustee for covered broker or dealer. Upon the appointment of the Corporation as receiver for a covered broker or dealer, the Corporation shall appoint SIPC to act as trustee for the covered broker or dealer. § 302.102 Notice and application for protective decree for covered broker or dealer. (a) SIPC and the Corporation, upon consultation with the Commission, shall jointly determine the terms of a notice and application for a protective decree that will be filed promptly with the Federal district court for the district within which the principal place of business of the covered broker or dealer is located; provided that if a case or proceeding under SIPA with respect to such covered broker or dealer is then pending, then such notice and application for a protective decree will be filed promptly with the Federal district court in which such case or proceeding under SIPA is pending. If such notice and application for a protective decree is filed on a date other than the appointment date, such filing shall be deemed to have occurred on the appointment date for the purposes of §§ 302.100 through 302.107. (b) A notice and application for a protective decree may, among other things, provide for notice— (1) Of the appointment of the Corporation as receiver and the appointment of SIPC as trustee for the covered broker or dealer; and (2) That the provisions of Title II of the Dodd-Frank Act and any regulations promulgated thereunder may apply, including without limitation the following: (i) Any existing case or proceeding with respect to a covered broker or dealer under the Bankruptcy Code or SIPA shall be dismissed effective as of the appointment date and no such case or proceeding may be commenced with PO 00000 Frm 00038 Fmt 4702 Sfmt 4702 10817 respect to a covered broker or dealer at any time while the Corporation is receiver for such covered broker or dealer; (ii) The revesting of assets in a covered broker or dealer to the extent that they have vested in any entity other than the covered broker or dealer as a result of any case or proceeding commenced with respect to the covered broker or dealer under the Bankruptcy Code, SIPA, or any similar provision of State liquidation or insolvency law applicable to the covered broker or dealer; provided that any such revesting shall not apply to assets held by the covered broker or dealer, including customer property, transferred prior to the appointment date pursuant to an order entered by the bankruptcy court presiding over the case or proceeding with respect to the covered broker or dealer; (iii) The request of the Corporation as receiver for a stay in any judicial action or proceeding (other than actions dismissed in accordance with paragraph (b)(2)(i) of this section) in which the covered broker or dealer is or becomes a party for a period of up to 90 days from the appointment date; (iv) Except as provided in paragraph (b)(2)(v) of this section with respect to qualified financial contracts, no person may exercise any right or power to terminate, accelerate or declare a default under any contract to which the covered broker or dealer is a party (and no provision in any such contract providing for such default, termination or acceleration shall be enforceable), or to obtain possession of or exercise control over any property of the covered broker or dealer or affect any contractual rights of the covered broker or dealer without the consent of the Corporation as receiver of the covered broker or dealer upon consultation with SIPC during the 90-day period beginning from the appointment date; and (v) The exercise of rights and the performance of obligations by parties to qualified financial contracts with the covered broker or dealer may be affected, stayed, or delayed pursuant to the provisions of Title II of the DoddFrank Act (including 12 U.S.C. 5390(c)) and the regulations promulgated thereunder. § 302.103 Bridge broker or dealer. (a) The Corporation, as receiver for one or more covered brokers or dealers or in anticipation of being appointed receiver for one or more covered broker or dealers, may organize one or more bridge brokers or dealers with respect to a covered broker or dealer. E:\FR\FM\02MRP1.SGM 02MRP1 jstallworth on DSK7TPTVN1PROD with PROPOSALS 10818 Federal Register / Vol. 81, No. 41 / Wednesday, March 2, 2016 / Proposed Rules (b) If the Corporation establishes one or more bridge brokers or dealers with respect to a covered broker or dealer, then, subject to paragraph (d) of this section, the Corporation as receiver for such covered broker or dealer shall transfer all customer accounts and all associated customer name securities and customer property to such bridge brokers or dealers unless the Corporation determines, after consultation with the Commission and SIPC, that: (1) The customer accounts, customer name securities, and customer property are likely to be promptly transferred to one or more qualified brokers or dealers such that the use of a bridge broker or dealer would not facilitate such transfer to one or more qualified brokers or dealers; or (2) The transfer of such customer accounts to a bridge broker or dealer would materially interfere with the ability of the Corporation to avoid or mitigate serious adverse effects on financial stability or economic conditions in the United States. (c) The Corporation, as receiver for such covered broker or dealer, also may transfer any other assets and liabilities of the covered broker or dealer (including non-customer accounts and any associated property and any assets and liabilities associated with any trust or custody business) to such bridge brokers or dealers as the Corporation may, in its discretion, determine to be appropriate in accordance with, and subject to the requirements of, 12 U.S.C. 5390(h), including 12 U.S.C. 5390(h)(1) and 5390(h)(5), and any regulations promulgated thereunder. (d) In connection with customer accounts transferred to the bridge broker or dealer pursuant to paragraph (b) of this section, claims for net equity shall not be transferred but shall remain with the covered broker or dealer. Customer property transferred from the covered broker or dealer, along with advances from SIPC, shall be allocated to customer accounts at the bridge broker or dealer in accordance with § 302.104(a)(3). Such allocations initially may be based upon estimates, and such estimates may be based upon the books and records of the covered broker or dealer or any other information deemed relevant in the discretion of the Corporation as receiver, in consultation with SIPC, as trustee. Such estimates may be adjusted from time to time as additional information becomes available. With respect to each account transferred to the bridge broker or dealer pursuant to paragraph (b) or (c) of this section, the bridge broker or dealer shall undertake VerDate Sep<11>2014 13:19 Mar 01, 2016 Jkt 238001 the obligations of a broker or dealer only with respect to property transferred to and held by the bridge broker or dealer, and allocated to the account as provided in § 302.104(a)(3), including any customer property and any advances from SIPC. The bridge broker or dealer shall have no obligations with respect to any customer property or other property that is not transferred from the covered broker or dealer to the bridge broker or dealer. The transfer of customer property to such an account shall have no effect on calculation of the amount of the affected accountholder’s net equity, but the value, as of the appointment date, of the customer property and advances from SIPC so transferred shall be deemed to satisfy any such claim, in whole or in part. (e) The transfer of assets or liabilities held by a covered broker or dealer, including customer accounts and all associated customer name securities and customer property, assets and liabilities held by a covered broker or dealer for any non-customer creditor, and assets and liabilities associated with any trust or custody business, to a bridge broker or dealer, shall be effective without any consent, authorization, or approval of any person or entity, including but not limited to, any customer, contract party, governmental authority, or court. (f) Any succession to or assumption by a bridge broker or dealer of rights, powers, authorities, or privileges of a covered broker or dealer shall be effective without any consent, authorization, or approval of any person or entity, including but not limited to, any customer, contract party, governmental authority, or court, and any such bridge broker or dealer shall upon its organization by the Corporation immediately and by operation of law— (1) Be established and deemed registered with the Commission under the Securities Exchange Act of 1934; (2) Be deemed to be a member of SIPC; and (3) Succeed to any and all registrations and memberships of the covered broker or dealer with or in any self-regulatory organizations. (g) Except as provided in paragraph (f) of this section, the bridge broker or dealer shall be subject to applicable Federal securities laws and all requirements with respect to being a member of a self-regulatory organization and shall operate in accordance with all such laws and requirements and in accordance with its articles of association; provided, however, that the Commission may, in its discretion, exempt the bridge broker or dealer from any such requirements if the Commission deems such exemption to PO 00000 Frm 00039 Fmt 4702 Sfmt 4702 be necessary or appropriate in the public interest or for the protection of investors. (h) At the end of the term of existence of a bridge broker or dealer, any proceeds that remain after payment of all administrative expenses of such bridge broker or dealer and all other claims against such bridge broker or dealer shall be distributed to the receiver for the related covered broker or dealer. § 302.104 Claims of customers and other creditors of a covered broker or dealer. (a) Trustee’s role. (1) SIPC, as trustee for a covered broker or dealer, shall determine customer status, claims for net equity, claims for customer name securities, and whether property of the covered broker or dealer qualifies as customer property. SIPC, as trustee for a covered broker or dealer, shall make claims determinations in accordance with SIPA and with paragraph (a)(3) of this section, but such determinations, and any claims related thereto, shall be governed by the procedures set forth in paragraph (b) of this section. (2) SIPC shall make advances in accordance with, and subject to the limitations imposed by, 15 U.S.C. 78fff– 3. Where appropriate, SIPC shall make such advances by delivering cash or securities to the customer accounts established at the bridge broker or dealer. (3) Customer property held by a covered broker or dealer shall be allocated as follows: (i) First, to SIPC in repayment of advances made by SIPC pursuant to 12 U.S.C. 5385(f) and 15 U.S.C. 78fff– 3(c)(1), to the extent such advances effected the release of securities which then were apportioned to customer property pursuant to 15 U.S.C. 78fff(d); (ii) Second, to customers of such covered broker or dealer, or in the case that customer accounts are transferred to a bridge broker or dealer, then to such customer accounts at a bridge broker or dealer, who shall share ratably in such customer property on the basis and to the extent of their respective net equities; (iii) Third, to SIPC as subrogee for the claims of customers; and (iv) Fourth, to SIPC in repayment of advances made by SIPC pursuant to 15 U.S.C. 78fff–3(c)(2). (4) The determinations and advances made by SIPC as trustee for a covered broker or dealer under §§ 302.100 through 302.107 shall be made in a manner consistent with SIPC’s customary practices under SIPA. The allocation of customer property, advances from SIPC, and delivery of E:\FR\FM\02MRP1.SGM 02MRP1 jstallworth on DSK7TPTVN1PROD with PROPOSALS Federal Register / Vol. 81, No. 41 / Wednesday, March 2, 2016 / Proposed Rules customer name securities to each customer or to its customer account at a bridge broker or dealer, in partial or complete satisfaction of such customer’s net equity claims as of the close of business on the appointment date, shall be in a manner, including form and timing, and in an amount at least as beneficial to such customer as would have been the case had the covered broker or dealer been liquidated under SIPA. Any claims related to determinations made by SIPC as trustee for a covered broker or dealer shall be governed by the procedures set forth in paragraph (b) of this section. (b) Receiver’s role. Any claim shall be determined in accordance with the procedures set forth in 12 U.S.C. 5390(a)(2) through (5) and the regulations promulgated by the Corporation thereunder, provided however, that— (1) Notice requirements. The notice of the appointment of the Corporation as receiver for a covered broker or dealer shall also include notice of the appointment of SIPC as trustee. The Corporation as receiver shall coordinate with SIPC as trustee to post the notice on SIPC’s public Web site in addition to the publication procedures set forth in 12 CFR 380.33. (2) Procedures for filing a claim. The Corporation as receiver shall consult with SIPC, as trustee, regarding a claim form and filing instructions with respect to claims against the Corporation as receiver for a covered broker or dealer, and such information shall be provided on SIPC’s public Web site in addition to the Corporation’s public Web site. Any such claim form shall contain a provision permitting a claimant to claim status as a customer of the broker or dealer, if applicable. (3) Claims bar date. The Corporation as receiver shall establish a claims bar date in accordance with 12 U.S.C. 5390(a)(2)(B)(i) and any regulations promulgated thereunder by which date creditors of a covered broker or dealer, including all customers of the covered broker or dealer, shall present their claims, together with proof. The claims bar date for a covered broker or dealer shall be the date following the expiration of the six-month period beginning on the date a notice to creditors to file their claims is first published in accordance with 12 U.S.C. 5390(a)(2)(B)(i) and any regulations promulgated thereunder. Any claim filed after the claims bar date shall be disallowed, and such disallowance shall be final, as provided by 12 U.S.C. 5390(a)(3)(C)(i) and any regulations promulgated thereunder, except that a claim filed after the claims bar date VerDate Sep<11>2014 13:19 Mar 01, 2016 Jkt 238001 shall be considered by the receiver as provided by 12 U.S.C. 5390(a)(3)(C)(ii) and any regulations promulgated thereunder. In accordance with section 8(a)(3) of SIPA, 15 U.S.C. 78fff–2(a)(3), any claim for net equity filed more than sixty days after the date the notice to creditors to file claims is first published need not be paid or satisfied in whole or in part out of customer property and, to the extent such claim is paid by funds advanced by SIPC, it shall be satisfied in cash or securities, or both, as SIPC, as trustee, determines is most economical to the receivership estate. (c) Decision period. The Corporation as receiver of a covered broker or dealer shall notify a claimant whether it allows or disallows the claim, or any portion of a claim or any claim of a security, preference, set-off, or priority, within the 180-day period set forth in 12 U.S.C. 5390(a)(3)(A) and any regulations promulgated thereunder (as such 180day period may be extended by written agreement as provided therein) or within the 90-day period set forth in 12 U.S.C. 5390(a)(5)(B) and any regulations promulgated thereunder, whichever is applicable. In accordance with paragraph (a) of this section, the Corporation, as receiver, shall issue the notice required by this paragraph (c), which shall utilize the determination made by SIPC, as trustee, in a manner consistent with SIPC’s customary practices in a liquidation under SIPA, with respect to any claim for net equity or customer name securities. The process established herein for the determination, within the 180-day period set forth in 12 U.S.C. 5390(a)(3)(A) and any regulations promulgated thereunder (as such 180day period may be extended by written agreement as provided therein), of claims by customers of a covered broker or dealer for customer property or customer name securities shall constitute the exclusive process for the determination of such claims, and any procedure for expedited relief established pursuant to 12 U.S.C. 5390(a)(5) and any regulations promulgated thereunder shall be inapplicable to such claims. (d) Judicial review. The claimant may seek a judicial determination of any claim disallowed, in whole or in part, by the Corporation as receiver, including any claim disallowed based upon any determination(s) of SIPC as trustee made pursuant to § 302.104(a), by the appropriate district or territorial court of the United States in accordance with 12 U.S.C. 5390(a)(4) or (5), whichever is applicable, and any regulations promulgated thereunder. PO 00000 Frm 00040 Fmt 4702 Sfmt 4702 10819 § 302.105 Priorities for unsecured claims against a covered broker or dealer. Allowed claims not satisfied pursuant to § 302.103(d), including allowed claims for net equity to the extent not satisfied after final allocation of customer property in accordance with § 302.104(a)(3), shall be paid in accordance with the order of priority set forth in 12 CFR 380.21 subject to the following adjustments: (a) Administrative expenses of SIPC incurred in performing its responsibilities as trustee for a covered broker or dealer shall be included as administrative expenses of the receiver as defined in 12 CFR 380.22 and shall be paid pro rata with such expenses in accordance with 12 CFR 380.21(c). (b) Amounts paid by the Corporation to customers or SIPC shall be included as amounts owed to the United States as defined in 12 CFR 380.23 and shall be paid pro rata with such amounts in accordance with 12 CFR 380.21(c). (c) Amounts advanced by SIPC for the purpose of satisfying customer claims for net equity shall be paid following the payment of all amounts owed to the United States pursuant to 12 CFR 380.21(a)(3) but prior to the payment of any other class or priority of claims described in 12 CFR 380.21(a)(4) through (11). § 302.106 SIPC. Administrative expenses of (a) In carrying out its responsibilities, SIPC, as trustee for a covered broker or dealer, may utilize the services of third parties, including private attorneys, accountants, consultants, advisors, outside experts, and other third party professionals. SIPC shall have an allowed claim for administrative expenses for any amounts paid by SIPC for such services to the extent that such services are available in the private sector, and utilization of such services is practicable, efficient, and cost effective. The term administrative expenses of SIPC includes the costs and expenses of such attorneys, accountants, consultants, advisors, outside experts, and other third party professionals, and other expenses that would be allowable to a third party trustee under 15 U.S.C. 78eee(b)(5)(A), including the costs and expenses of SIPC employees that would be allowable pursuant to 15 U.S.C. 78fff(e). (b) The term administrative expenses of SIPC shall not include advances from SIPC to satisfy customer claims for net equity. § 302.107 Qualified financial contracts. The rights and obligations of any party to a qualified financial contract to E:\FR\FM\02MRP1.SGM 02MRP1 10820 Federal Register / Vol. 81, No. 41 / Wednesday, March 2, 2016 / Proposed Rules further instructions on submitting comments. which a covered broker or dealer is a party shall be governed exclusively by 12 U.S.C. 5390, including the limitations and restrictions contained in 12 U.S.C. 5390(c)(10)(B), and any regulations promulgated thereunder. FOR FURTHER INFORMATION CONTACT: Dated: February 17, 2016. By the Securities and Exchange Commission. Brent J. Fields, Secretary. Dated this 17th day of February, 2016. By order of the Board of Directors. Federal Deposit Insurance Corporation. Robert E. Feldman, Executive Secretary. I. Table of Abbreviations DHS Department of Homeland Security U.S.C. United States Code CFR Code of Federal Regulation FR Federal Register NPRM Notice of Proposed Rulemaking NAD 83 North American Datum of 1983 [FR Doc. 2016–03874 Filed 3–1–16; 8:45 am] BILLING CODE 8011–01–P; 6714–01–P DEPARTMENT OF HOMELAND SECURITY Coast Guard 33 CFR Part 165 [Docket Number USCG–2016–0004] RIN 1625–AA00 Safety Zone; Misery Challenge, Manchester Bay, Manchester, MA Coast Guard, DHS. Notice of proposed rulemaking. AGENCY: ACTION: The Coast Guard is proposing to establish a temporary safety zone for certain waters of Manchester Bay to be enforced during the Misery Challenge marine event, which will involve swimmers, kayakers, and stand-up paddlers. This safety zone would ensure the protection of the event participants, support vessels, and the maritime public from the hazards associated with the event. This proposed rulemaking would prohibit persons and vessels from entering into, transiting through, mooring, or anchoring within this safety zone during periods of enforcement unless authorized by the Coast Guard Sector Boston Captain of the Port (COTP) or the COTP’s designated representative. We invite your comments on this proposed rulemaking. DATES: Comments and related material must be received by the Coast Guard on or before April 1, 2016. ADDRESSES: You may submit comments identified by docket number USCG– 2016–0004 using the Federal eRulemaking Portal at https:// www.regulations.gov. See the ‘‘Public Participation and Request for Comments’’ portion of the SUPPLEMENTARY INFORMATION section for jstallworth on DSK7TPTVN1PROD with PROPOSALS SUMMARY: VerDate Sep<11>2014 13:19 Mar 01, 2016 Jkt 238001 If you have questions on this proposed rulemaking, call or email Mr. Mark Cutter, Sector Boston Waterways Management Division, U.S. Coast Guard; telephone 617–223–4000, email Mark.E.Cutter@uscg.mil. SUPPLEMENTARY INFORMATION: II. Background, Purpose, and Legal Basis On October 23, 2015, the Coast Guard was notified that of a swimming and stand up paddling event from 7:30 a.m. to 12 p.m. on July 23, 2016 with a weather date on July 24, 2016; named the Misery Challenge. The participants will launch from Tucks Point in Manchester Bay, Manchester, MA and continue around Greater Misery Island returning to Tucks Point. Hazards associated with this include accidental collisions with event participants and the maritime public. The COTP has determined that potential hazards associated with the event would be a safety concern for event participants, support vessels, and the maritime public. The purpose of this rulemaking is to ensure the safety of event participants, support vessels, the maritime public, and the navigable waters within a 100 yard radius of the event participants, during, and after the scheduled event. The Coast Guard proposes this rulemaking under authority in 33 U.S.C. 1231. III. Discussion of Proposed Rule The COTP proposes to establish a temporary safety zone from 7 a.m. to 12:30 p.m. on July 23, 2016 with a weather date on July 24, 2016. The safety zone would cover all navigable waters within specific geographic locations specified in the regulatory text on the navigable waters of Manchester Bay, Manchester, Massachusetts. Vessels not associated with the event shall maintain a distance of at least 100 yards from the participants. The duration of the zone is intended to ensure the safety of event participants, support vessels, and the maritime public before, during, and after the event scheduled from 7:30 a.m. to 12 p.m. event. No vessel or person would be permitted to enter the safety zone PO 00000 Frm 00041 Fmt 4702 Sfmt 4702 without obtaining permission from the COTP or a designated representative. The regulatory text we are proposing appears at the end of this document. IV. Regulatory Analyses We developed this proposed rule after considering numerous statutes and Executive orders related to rulemaking. Below we summarize our analyses based on a number of these statutes and Executive orders and we discuss First Amendment rights of protestors. A. Regulatory Planning and Review Executive Orders 12866 and 13563 direct agencies to assess the costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits. Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. This NPRM has not been designated a ‘‘significant regulatory action,’’ under Executive Order 12866. Accordingly, the NPRM has not been reviewed by the Office of Management and Budget. We expect the economic impact of this rule to be minimal. This regulation may have some impact on the public, but that potential impact will likely be minimal for several reasons. First, this safety zone will be in effect for only five and one half hours in the morning when vessel traffic is expected to be light. Second, vessels may enter or pass through the safety zone during an enforcement period with the permission of the COTP or the designated representative. Finally, the Coast Guard will provide notification to the public through Broadcast Notice to Mariners well in advance of the event. B. Impact on Small Entities The Regulatory Flexibility Act of 1980, 5 U.S.C. 601–612, as amended, requires federal agencies to consider the potential impact of regulations on small entities during rulemaking. The term ‘‘small entities’’ comprises small businesses, not-for-profit organizations that are independently owned and operated and are not dominant in their fields, and governmental jurisdictions with populations of less than 50,000. The Coast Guard certifies under 5 U.S.C. 605(b) that this proposed rule will not have a significant economic impact on a substantial number of small entities. For all of the reasons discussed in the Regulatory Planning And Review section, this rulemaking would not have a significant economic impact on a substantial number of small entities. E:\FR\FM\02MRP1.SGM 02MRP1

Agencies

[Federal Register Volume 81, Number 41 (Wednesday, March 2, 2016)]
[Proposed Rules]
[Pages 10798-10820]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-03874]

=======================================================================
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FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 380

RIN 3064-AE39

SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 302

RIN 3235-AL51
[Release No. 34-77157; File No. S7-02-16]

Covered Broker-Dealer Provisions Under Title II of the Dodd-Frank
Wall Street Reform and Consumer Protection Act

AGENCY: Federal Deposit Insurance Corporation (``FDIC'' or
``Corporation''); Securities and Exchange Commission (``SEC'' or
``Commission'' and, collectively with the FDIC, the ``Agencies'').

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Agencies, in accordance with section 205(h) of the Dodd-
Frank Wall Street Reform and Consumer Protection Act (``Dodd-Frank
Act''), are jointly proposing a rule to implement provisions applicable
to the orderly liquidation of covered brokers and dealers under Title
II of the Dodd-Frank Act (``Title II'').

DATES: Comments should be received on or before May 2, 2016.

ADDRESSES: Comments may be submitted by any of the following methods:

FDIC

FDIC Web site: https://www.fdic.gov/regulations/laws/federal. Follow instructions for submitting comments on the FDIC Web
site.
FDIC email: Comments@FDIC.gov. Include ``RIN 3064-AE39''
in the subject line of the message.
FDIC mail: Robert E. Feldman, Executive Secretary,
Attention: Comments, Federal Deposit Insurance Corporation, 550 17th
Street NW., Washington, DC 20429.
Hand delivery/courier: Guard station at the rear of the
550 17th Street Building (located on F Street) on business days between
7 a.m. and 5 p.m. (Eastern Time).
Federal eRulemaking portal: https://www.regulations.gov.
Follow the instructions for submitting comments.
Public inspection: All comments received will be posted
without change to https://www.fdic.gov/regulations/laws/federal
including any personal information provided. Paper copies of public
comments may be ordered from the Public Information Center by telephone
at (877) 275-3342 or (703) 562-2200.

SEC

Electronic Comments

Use the Commission's Internet comment form (https://www.sec.gov/rules/proposed.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number S7-02-16 on the subject line; or

[[Page 10799]]

Use the Federal eRulemaking Portal (https://www.regulations.gov). Follow the instructions for submitting comments.

Paper Comments

Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number S7-02-16. This file number
should be included on the subject line if email is used. 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 Web site (https://www.sec.gov/rules/proposed.shtml).
Comments also are 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
publicly available.
Studies, memoranda or other substantive items may be added by the
Commission or staff to the comment file during this rulemaking. A
notification of the inclusion in the comment file of any such materials
will be made available on the Commission's Web site. To ensure direct
electronic receipt of such notifications, sign up through the ``Stay
Connected'' option at www.sec.gov to receive notifications by email.

FOR FURTHER INFORMATION CONTACT:

FDIC

Peter Miller, Assistant Director, Division of Resolutions and
Receiverships, at (917) 320-2589; John Oravec, Senior Resolution
Advisor, Office of Complex Financial Institutions, at (202) 898-6612;
Elizabeth Falloon, Supervisory Counsel, Legal Division, at (703) 562-
6148; Pauline Calande, Senior Counsel, Legal Division, at (202) 898-
6744.

SEC

Thomas K. McGowan, Associate Director, at (202) 551-5521; Randall
W. Roy, Deputy Associate Director, at (202) 551-5522; Raymond A.
Lombardo, Branch Chief, at (202) 551-5755; Jane D. Wetterau, Attorney
Advisor, at (202) 551-4483, Division of Trading and Markets, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-7010.

SUPPLEMENTARY INFORMATION:

I. Background
II. Proposed Rule
A. Definitions
1. Definitions Relating to Covered Broker-Dealers
2. Additional Definitions
B. Appointment of Receiver and Trustee for Covered Broker-Dealer
C. Notice and Application for Protective Decree for Covered
Broker-Dealer
D. Bridge Broker-Dealer
1. Power To Establish Bridge Broker-Dealer; Transfer of Customer
Accounts and Other Assets and Liabilities
2. Other Provisions With Respect to Bridge Broker-Dealer
E. Claims of Customers and Other Creditors of a Covered Broker-
Dealer
F. Additional Proposed Sections
III. Requests for Comments
A. In General
B. Requests for Comment on Certain Specific Matters
IV. Paperwork Reduction Act
V. Economic Analysis
A. Introduction and General Economic Considerations
B. Economic Baseline
1. SIPC's Role
2. The Corporation's Power To Establish Bridge Broker-Dealers
3. Satisfaction of Customer Claims
C. Benefits, Costs and Effects on Efficiency, Competition, and
Capital Formation
1. Anticipated Benefits
2. Anticipated Costs
3. Effects on Efficiency, Competition, and Capital Formation
D. Alternatives Considered
E. Request for Comment
VI. Regulatory Analysis and Procedures
A. Regulatory Flexibility Act Analysis
B. The Treasury and General Government Appropriations Act,
1999--Assessment of Federal Regulations and Policies on Families
C. Plain Language
VII. Consideration of Impact on the Economy
VIII. Statutory Authority

I. Background

Title II of the Dodd-Frank Act \1\ provides an alternative
insolvency regime for the orderly liquidation of large financial
companies that meet specified criteria.\2\ Section 205 of Title II sets
forth certain provisions specific to the orderly liquidation of certain
large broker-dealers, and paragraph (h) of section 205 requires the
Agencies, in consultation with the Securities Investor Protection
Corporation (``SIPC''), jointly to issue rules to implement section
205.\3\
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\1\ Dodd-Frank Wall Street Reform and Consumer Protection Act of
2010, Public Law 111-203, 124 Stat. 1376 (2010) and codified at 12
U.S.C. 5301 et seq. Title II of the Dodd-Frank Act is codified at 12
U.S.C. 5381-5394.
\2\ See 12 U.S.C. 5384 (pertaining to the orderly liquidation of
covered financial companies).
\3\ See 12 U.S.C. 5385 (pertaining to the orderly liquidation of
covered broker-dealers).
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In the case of a broker-dealer, or in which the largest U.S.
subsidiary of a financial company \4\ is a broker-dealer, the Board of
Governors of the Federal Reserve (``Board'') and the Commission are
authorized jointly to issue a written orderly liquidation
recommendation to the U.S. Treasury Secretary (``Secretary''). The FDIC
must be consulted in such a case.
---------------------------------------------------------------------------

\4\ Section 201(a)(11) of the Dodd-Frank Act (12 U.S.C.
5381(a)(11)) (defining financial company).
---------------------------------------------------------------------------

The recommendation, which may be sua sponte or at the request of
the Secretary, must contain a discussion regarding eight criteria
enumerated in section 203(a)(2) \5\ and be approved by a vote of not
fewer than a two-thirds majority of each agency's governing body then
serving.\6\ Based on similar but not identical criteria enumerated in
section 203(b), the Secretary would consider the recommendation and (in
consultation with the President) determine whether the financial
company poses a systemic risk meriting liquidation under Title II.\7\
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\5\ See 12 U.S.C. 5383(a)(2)(A) through (G).
\6\ See 12 U.S.C. 5383(a)(1)(B) (pertaining to vote required in
cases involving broker-dealers).
\7\ See 12 U.S.C. 5383(b) (pertaining to a determination by the
Secretary).
---------------------------------------------------------------------------

Title II also provides that in any case in which the Corporation is
appointed receiver for a covered financial company,\8\ the Corporation
may appoint itself as receiver for any covered subsidiary \9\ if the
Corporation and the Secretary make the requisite joint determination
specified in section 210.\10\
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\8\ See 12 U.S.C. 5381(a)(8) (definition of covered financial
company).
\9\ See 12 U.S.C. 5381(a)(9) (definition of covered subsidiary).
A covered subsidiary of a covered financial company could include a
broker-dealer.
\10\ See 12 U.S.C. 5390(a)(1)(e).
---------------------------------------------------------------------------

A company that is the subject of an affirmative section 203(b) or
section 210(a)(1)(E) determination would be considered a covered
financial company for purposes of Title II.\11\ As discussed below, a
covered broker or dealer is a covered financial company that is
registered with the Commission as a broker or dealer and is a member of
SIPC.\12\ Irrespective of how the broker-dealer was placed into a Title
II resolution, section 205 regarding the liquidation of covered broker-
dealers and the proposed rule (if adopted) would always apply to the
broker-dealer even if section 210 is invoked.\13\
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\11\ See 12 U.S.C. 5381(a)(8) (definition of covered financial
company); 12 U.S.C. 5390(a)(1)(E)(ii) (treatment as covered
financial company).
\12\ See 12 U.S.C. 5381(a)(7) (definition of covered broker or
dealer). For convenience, we hereinafter refer to entities that meet
this definition as covered broker-dealers.
\13\ See 12 U.S.C. 5390(a)(1)(E).
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Upon a determination under section 203 or section 210, a covered
financial

[[Page 10800]]

company would be placed into an orderly liquidation proceeding and the
FDIC would be appointed receiver.\14\ In the case of a covered broker-
dealer, the FDIC would appoint SIPC as trustee for the covered broker-
dealer.\15\ Although the statute refers to the appointment of SIPC as
trustee for the ``liquidation of the covered broker-dealer under [the
Securities Investor Protection Act (``SIPA'')]'',\16\ the proposed rule
simply refers to SIPC as trustee for the covered broker-dealer since
the Title II receivership is not a liquidation of the covered broker-
dealer under SIPA, but rather an orderly liquidation of the broker-
dealer under Title II that incorporates the customer protection
provisions of SIPA. The FDIC could utilize a bridge financial company,
a bridge broker-dealer,\17\ as a means to liquidate the covered broker-
dealer, transferring customer accounts and associated customer name
securities and customer property to such bridge financial company.\18\
In the event that a bridge broker-dealer were created, SIPC, as trustee
under SIPA for the covered broker-dealer, would determine claims and
distribute assets retained in the receivership of the covered broker-
dealer in a manner consistent with SIPA.\19\ The transfer of customer
property, and advances from SIPC, made to the bridge broker-dealer and
allocated to a customer's account at the bridge broker-dealer would
satisfy a customer's net equity claims against the covered broker-
dealer to the extent of the value, as of the appointment date, of such
allocated property. SIPC would have no powers or duties with respect to
assets and liabilities of the bridge broker-dealer.\20\ This rulemaking
clarifies for purposes of section 205(h): \21\ How the customer
protections of SIPA will be integrated with the other provisions of
Title II; the roles of the Corporation as receiver and SIPC as trustee
for a covered broker-dealer; and the administration of claims in an
orderly liquidation of a covered broker-dealer.
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\14\ See 12 U.S.C. 5384 (pertaining to orderly liquidation of
covered financial companies).
\15\ See 12 U.S.C. 5385(a) (appointment of SIPC as trustee for
the liquidation).
\16\ 12 U.S.C. 5385(a)(1).
\17\ See Section II.A.2 below for a definition of bridge broker
or dealer. For convenience, we hereinafter refer to entities that
meet that definition as bridge broker-dealers.
\18\ See 12 U.S.C. 5390(h)(2)(H) (pertaining to the
Corporation's authority to organize bridge financial companies). See
also infra section II.D.2 (describing the process of transferring
accounts to the bridge broker-dealer).
\19\ See 12 U.S.C. 5385(a)(2)(B) (pertaining to the
administration by SIPC of assets of the covered broker-dealer not
transferred to a bridge broker-dealer).
\20\ 12 U.S.C. 5385(b)(1).
\21\ 12 U.S.C. 5385(f).
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II. Proposed Rule

A. Definitions \22\
---------------------------------------------------------------------------

\22\ If adopted, the definitions section would appear in 12 CFR
380.60 for purposes of the Corporation and 17 CFR 302.100 for
purposes of the Commission.
---------------------------------------------------------------------------

The proposed definitions section would define certain key terms.
Consistent with the remainder of the proposed rule, the definitions are
designed to help ensure that, as the statute requires, net equity
claims of customers against a covered broker-dealer are determined and
satisfied in a manner and amount that is at least as beneficial to
customers as would have been the case had the covered broker-dealer
been liquidated under SIPA without the appointment of the FDIC as
receiver and without any transfer of assets or liabilities to a bridge
financial company, and with a filing date as of the date on which the
FDIC was appointed as receiver.\23\ To effectuate the statutory
requirement, the definitions in the proposed rule are very similar or
identical to the corresponding definitions in SIPA and Title II of the
Dodd-Frank Act, and where they differ, it is for purposes of clarity
only and not to change or modify the meaning of the definitions under
either Act.
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\23\ See 12 U.S.C. 5385(f)(1) (pertaining to obligations to
customers) and 12 U.S.C. 5385(d)(1)(A) through (C) (limiting certain
actions of the Corporation that would adversely affect, diminish or
otherwise impair certain customer rights).
---------------------------------------------------------------------------

1. Definitions Relating to Covered Broker-Dealers
The term covered broker or dealer would be defined as ``a covered
financial company that is a qualified broker or dealer.'' \24\ Pursuant
to section 201(a)(10) of the Dodd-Frank Act, the terms customer,
customer name securities, customer property, and net equity in the
context of a covered broker-dealer will have the same meaning as the
corresponding terms in section 16 of SIPA.\25\
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\24\ See Sec. Sec. 380.60(d) and 302.100(d), as proposed. See
also 12 U.S.C. 5381(a)(7).
\25\ 12 U.S.C. 5381(a)(10). See also 15 U.S.C. 78lll and
Sec. Sec. 380.60 and 302.100, as proposed.
---------------------------------------------------------------------------

Section 16(2)(A) of SIPA defines customer of a debtor, in pertinent
part, as any person (including any person with whom the debtor deals as
principal or agent) who has a claim on account of securities received,
acquired, or held by the debtor in the ordinary course of its business
as a broker or dealer from or for the securities accounts of such
person for safekeeping, with a view to sale, to cover consummated
sales, pursuant to purchases, as collateral, security, or for purposes
of effecting transfer.\26\ Section 16(3) of SIPA defines customer name
securities as securities which were held for the account of a customer
on the filing date by or on behalf of the debtor and which on the
filing date were registered in the name of the customer, or were in the
process of being so registered pursuant to instructions from the
debtor, but does not include securities registered in the name of the
customer which, by endorsement or otherwise, were in negotiable
form.\27\ Section 16(4) of SIPA defines customer property, in pertinent
part, as cash and securities (except customer name securities delivered
to the customer) at any time received, acquired, or held by or for the
account of a debtor from or for the securities accounts of a customer,
and the proceeds of any such property transferred by the debtor,
including property unlawfully converted.\28\
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\26\ 15 U.S.C. 78lll(2)(A). See also Sec. Sec. 380.60(e) and
302.100(e), as proposed.
\27\ 15 U.S.C. 78lll(3). See also Sec. Sec. 380.60(f) and
302.100(f), as proposed.
\28\ 15 U.S.C. 78lll(4). See also Sec. Sec. 380.60(g) and
302.100(g), as proposed.
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Section (16)(11) of SIPA defines net equity as the dollar amount of
the account or accounts of a customer, to be determined by:
1. Calculating the sum which would have been owed by the debtor to
such customer if the debtor had liquidated, by sale or purchase on the
filing date--
a. All securities positions of such customer (other than customer
name securities reclaimed by such customer); and
b. All positions in futures contracts and options on futures
contracts held in a portfolio margining account carried as a securities
account pursuant to a portfolio margining program approved by the
Commission, including all property collateralizing such positions, to
the extent that such property is not otherwise included herein; minus
2. Any indebtedness of such customer to the debtor on the filing
date; plus
3. Any payment by such customer of such indebtedness to the debtor
which is made with the approval of the trustee and within such period
as the trustee may determine (but in no event more than sixty days
after the publication of notice under section (8)(a) [of SIPA]).\29\
---------------------------------------------------------------------------

\29\ 15 U.S.C. 78lll(11) (emphasis added). See also Sec. Sec.
380.60(h) and 302.100(h), as proposed.
---------------------------------------------------------------------------

The proposed definition of appointment date is the date of the
appointment of the Corporation as receiver for a covered financial
company that is a covered broker or

[[Page 10801]]

dealer.\30\ The appointment date would constitute the filing date as
that term is used under SIPA \31\ and, like the filing date under SIPA,
is the reference date for the computation of net equity.\32\
---------------------------------------------------------------------------

\30\ See Sec. Sec. 380.60(a) and 302.100(a), as proposed.
\31\ See Sec. Sec. 380.60(a) and 302.100(a), as proposed.
\32\ See Sec. Sec. 380.60(a) and 302.100(a), as proposed. See
also 12 U.S.C. 5385(a)(2)(C) and 15 U.S.C. 78lll(7).
---------------------------------------------------------------------------

2. Additional Definitions
In addition to the definitions relating to covered broker-dealers
under section 201(a)(10) of the Dodd-Frank Act,\33\ the Agencies also
propose to define the following terms: (1) bridge broker or dealer;
\34\ (2) Commission; \35\ (3) qualified broker or dealer; \36\ (4) SIPA
\37\ and (5) SIPC. \38\
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\33\ See 12 U.S.C. 5381(a)(10).
\34\ See Sec. Sec. 380.60(b) and 302.100(b), as proposed.
\35\ See Sec. Sec. 380.60(c) and 302.100(c), as proposed.
\36\ See Sec. Sec. 380.60(i) and 302.100(i), as proposed.
\37\ See Sec. Sec. 380.60(j) and 302.100(j), as proposed.
\38\ See Sec. Sec. 380.60(k) and 302.100(k), as proposed.
---------------------------------------------------------------------------

The term bridge broker or dealer would be defined as a new
financial company organized by the Corporation in accordance with
section 210(h) of the Dodd-Frank Act for the purpose of resolving a
covered broker or dealer.\39\ The term Commission would be defined as
the Securities and Exchange Commission.\40\ The term qualified broker
or dealer would refer to a broker or dealer that (A) is registered with
the Commission under section 15(b) of the Securities Exchange Act of
1934 (15 U.S.C. 78o(b)); and (B) is a member of SIPC, but is not itself
subject to a Title II receivership.\41\ This definition is consistent
with the statutory definition but is abbreviated for clarity. It is not
intended to change or modify the statutory definition. The term SIPA
would refer to the Securities Investor Protection Act of 1970, 15
U.S.C. 78aaa-lll.\42\ The term SIPC would refer to the Securities
Investor Protection Corporation.\43\
---------------------------------------------------------------------------

\39\ See Sec. Sec. 380.60(b) and 302.100(b), as proposed. See
also 15 U.S.C. 5390(h)(2)(H) (setting forth that the FDIC, as
receiver for a covered broker or dealer, may approve articles of
association for one or more bridge financial companies with respect
to such covered broker or dealer).
\40\ See Sec. Sec. 380.60(c) and 302.100(c), as proposed.
\41\ See Sec. Sec. 380.60(i) and 302.100(i), as proposed.
\42\ See Sec. Sec. 380.60(j) and 302.100(j), as proposed.
\43\ See Sec. Sec. 380.60(k) and 302.100(k), as proposed.
---------------------------------------------------------------------------

B. Appointment of Receiver and Trustee for Covered Broker-Dealer \44\
---------------------------------------------------------------------------

\44\ If adopted, the section about the appointment of receiver
and trustee for covered broker-dealers would appear in 12 CFR 380.61
for purposes of the Corporation and 17 CFR 302.101 for purposes of
the Commission. The rule text in both CFRs will be identical.
---------------------------------------------------------------------------

Upon the FDIC's appointment as receiver for a covered broker-
dealer, section 205 of the Dodd-Frank Act specifies that the
Corporation shall appoint SIPC to act as trustee for the liquidation
under SIPA of the covered broker-dealer.\45\ The proposed rule deviates
from the statutory language in some cases to clarify the orderly
liquidation process. For example, the proposed rule would make it clear
that SIPC is to be appointed as trustee for the covered broker-dealer
but deletes the phrase ``for the liquidation under SIPA'' since in
reality there is no proceeding under SIPA and the covered broker-dealer
is being liquidated under Title II. Section 205 of the Dodd-Frank Act
also states that court approval is not required for such
appointment.\46\ For ease and clarity, the proposed rule would
incorporate these statutory roles which are further explained in other
sections of the proposed rule.\47\
---------------------------------------------------------------------------

\45\ See 12 U.S.C. 5385(a)(1).
\46\ Id.
\47\ See Sec. Sec. 380.61 and 302.101, as proposed.
---------------------------------------------------------------------------

C. Notice and Application for Protective Decree for Covered Broker-
Dealer \48\
---------------------------------------------------------------------------

\48\ If adopted, the notice and application for protective
decree for the covered broker-dealer section will appear in 12 CFR
380.62 for purposes of the FDIC and 17 CFR 302.102 for purposes of
the Commission.
---------------------------------------------------------------------------

Upon the appointment of SIPC as trustee for the covered broker-
dealer, Title II requires SIPC, as trustee, promptly to file an
application for a protective decree with a federal district court, and
SIPC and the Corporation, in consultation with the Commission, jointly
to determine the terms of the protective decree to be filed.\49\
Although a SIPA proceeding is conducted under bankruptcy court
supervision,\50\ a Title II proceeding is conducted entirely outside of
the bankruptcy courts, through an administrative process, with the FDIC
acting as receiver.\51\ As a result, a primary purpose of filing a
notice and application for a protective decree is to give notice to
interested parties that an orderly liquidation proceeding has been
initiated. The proposed rule on notice and application for protective
decree provides additional clarification of the statutory requirement
by setting forth the venue in which the notice and application for a
protective decree is to be filed. It states that a notice and
application for a protective decree is to be filed with the federal
district court in which a liquidation of the covered broker-dealer
under SIPA is pending, or if no such SIPA liquidation is pending, the
federal district court for the district within which the covered
broker-dealer's principal place of business is located.\52\ This court
is a federal district court of competent jurisdiction specified in
section 21 or 27 of the Exchange Act, 15 U.S.C. 78u, 78aa.\53\ It also
is the court with jurisdiction over suits seeking de novo judicial
claims determinations under section 210(a)(4)(A) of the Dodd-Frank
Act.\54\ While the statute grants authority to file the notice and
application for a protective decree in any federal court of competent
jurisdiction specified in section 21 or 27 or the Securities Exchange
Act of 1934, the proposed rule restricts the filing to the courts
specified above in order to make it easier for interested parties to
know where the protective decree might be filed. The proposed rule also
clarifies that if the notice and application for a protective decree is
filed on a date other than the appointment date, the filing shall be
deemed to have occurred on the appointment date for purposes of the
rule.\55\
---------------------------------------------------------------------------

\49\ See 12 U.S.C. 5385(b)(3) (pertaining to the filing of a
protective decree by SIPC).
\50\ See 15 U.S.C. 78eee(b).
\51\ See 15 U.S.C. 5388 (requiring the dismissal of all other
bankruptcy or insolvency proceedings upon the appointment of the
Corporation as receiver for a covered financial company).
\52\ See Sec. Sec. 380.62(a) and 302.102(a), as proposed.
\53\ See 12 U.S.C. 5385(a)(2)(A) (specifying the federal
district courts in which the application for a protective decree may
be filed).
\54\ See 12 U.S.C. 5390(a)(4)(A) (a claimant may file suit in
the district or territorial court for the district within which the
principal place of business of the covered financial company is
located).
\55\ See Sec. Sec. 380.62(a) and 302.102(a), as proposed.
---------------------------------------------------------------------------

This proposed section of the rule governing the notice and
application for a protective decree would also include a non-exclusive
list of notices drawn from other parts of Title II.\56\ The goal would
be to inform interested parties that the covered broker-dealer is in
orderly liquidation, and to highlight the application of certain
provisions of the orderly liquidation authority particularly with
respect to applicable stays and other matters that might be addressed
in a protective decree issued under SIPA. A notice and application for
a protective decree under Title II may, among other things, provide for
notice: (1) That any existing case or proceeding under the Bankruptcy
Code or SIPA would be dismissed, effective as of the appointment date,
and no such case or proceeding may be commenced with respect to a
covered broker-dealer at any time while the Corporation is the receiver
for such covered broker-dealer; \57\ (2) of the revesting of assets,

[[Page 10802]]

with certain exceptions, in a covered broker-dealer to the extent that
they have vested in any entity other than the covered broker-dealer as
a result of any case or proceeding commenced with respect to the
covered broker-dealer under the Bankruptcy Code, SIPA, or any similar
provision of state liquidation or insolvency law applicable to the
covered broker-dealer; \58\ (3) of the request of the Corporation as
receiver for a stay in any judicial action or proceeding in which the
covered broker-dealer is or becomes a party for a period of up to 90
days from the appointment date; \59\ (4) that except with respect to
qualified financial contracts (``QFCs''),\60\ no person may exercise
any right or power to terminate, accelerate, or declare a default under
any contract to which the covered broker-dealer is a party or to obtain
possession of or exercise control over any property of the covered
broker-dealer or affect any contractual rights of the covered broker-
dealer without the consent of the FDIC as receiver of the covered
broker-dealer upon consultation with SIPC during the 90-day period
beginning from the appointment date \61\; and (5) that the exercise of
rights and the performance of obligations by parties to QFCs with the
covered broker-dealer may be affected, stayed, or delayed pursuant to
the provisions of Title II (including but not limited to 12 U.S.C.
5390(c)) and the regulations promulgated thereunder.\62\
---------------------------------------------------------------------------

\56\ See Sec. Sec. 380.62(b) and 302.102(b), as proposed.
\57\ See Sec. Sec. 380.62(b)(2)(i) and 302.102(b)(2)(i), as
proposed. See also 12 U.S.C. 5388(a) (regarding dismissal of any
case or proceeding relating to a covered broker-dealer under the
Bankruptcy Code or SIPA on the appointment of the Corporation as
receiver and notice to the court and SIPA).
\58\ See Sec. Sec. 380.62(b)(2)(ii) and 302.102(b)(2)(ii), as
proposed. See also 12 U.S.C. 5388(b) (providing that the notice and
application for a protective decree may also specify that any
revesting of assets in a covered broker or dealer to the extent that
they have vested in any other entity as a result of any case or
proceeding commenced with respect to the covered broker or dealer
under the Bankruptcy Code, SIPA, or any similar provision of State
liquidation or insolvency law applicable to the covered broker or
dealer shall not apply to assets of the covered broker or dealer,
including customer property, transferred pursuant to an order
entered by a bankruptcy court).
\59\ See Sec. Sec. 380.62(b)(2)(iii) and 302.102(b)(2)(iii), as
proposed. See also 12 U.S.C. 5390(a)(8) (providing for the temporary
suspension of legal actions upon request of the Corporation).
\60\ See 12 U.S.C. 5390(c)(8)(D) (defining qualified financial
contract as ``any securities contract, commodity contract, forward
contract, repurchase agreement, swap agreement, and any similar
agreement that the Corporation determines by regulation, resolution,
or order to be a qualified financial contract for purposes of this
paragraph'').
\61\ 12 U.S.C. 5390(c)(13)(C)(i).
\62\ See Sec. Sec. 380.62(b)(2)(iv) and 302.102(b)(2)(iv), as
proposed. See also 12 U.S.C. 5390(c)(8)(F) (rendering unenforceable
all QFC walkaway clauses (as defined in 12 U.S.C.
5390(c)(8)(F)(iii)) including those provisions that suspend,
condition, or extinguish a payment obligation of a party because of
the insolvency of a covered financial company or the appointment of
the FDIC as receiver) and 12 U.S.C. 5390(c)(10)(B)(i) (providing
that in the case of a QFC, a person who is a party to a QFC with a
covered financial company may not exercise any right that such
person has to terminate, liquidate, or net such contract solely by
reason of or incidental to the appointment of the FDIC as receiver
(or the insolvency or financial condition of the covered financial
company for which the FDIC has been appointed as receiver) --until
5:00 p.m. (eastern time) on the business day following the
appointment, or after the person has received notice that the
contract has been transferred pursuant to 12 U.S.C. 5390(c)(9)(A)).
---------------------------------------------------------------------------

The proposed rule makes clear that the matters listed for inclusion
in the notice and application for a protective decree are neither
mandatory nor all-inclusive. The items listed are those that the
Agencies believe might provide useful guidance to customers and other
parties who may be less familiar with the Title II process than with a
SIPA proceeding. It is worth noting that the language relating to QFCs
is rather general. In certain circumstances it may be worthwhile
specifically to highlight the one-day stay provisions in section
210(c)(10) of the Dodd-Frank Act, the provisions relating to the
enforcement of affiliate contracts under section 210(c)(16) of the
Dodd-Frank Act, and other specific provisions relating to QFCs or other
contracts.

D. Bridge Broker-Dealer \63\
---------------------------------------------------------------------------

\63\ If adopted, the bridge broker or dealer section will appear
in 12 CFR 380.63 for purposes of the Corporation and 17 CFR 302.103
for purposes of the Commission.
---------------------------------------------------------------------------

1. Power To Establish Bridge Broker-Dealer; Transfer of Customer
Accounts and Other Assets and Liabilities
Section 210 of the Dodd-Frank Act sets forth the Corporation's
powers as receiver of a covered financial company.\64\ One such power
the Corporation has, as receiver, is the power to form bridge financial
companies.\65\ Paragraph (a) of this section of the proposed rule
states that the Corporation as receiver for a covered broker-dealer, or
in anticipation of being appointed receiver for a covered broker-
dealer, may organize one or more bridge broker-dealers with respect to
a covered broker-dealer.\66\ Paragraph (b) of this section of the
proposed rule states that if the Corporation were to establish one or
more bridge broker-dealers with respect to a covered broker-dealer,
then the Corporation as receiver for such covered broker-dealer shall
transfer all customer accounts and all associated customer name
securities and customer property to such bridge broker[s]-dealer[s]
unless the Corporation, after consultation with the Commission and
SIPC, determines that: (1) The transfer of such customer accounts,
customer name securities, and customer property to one or more
qualified broker-dealers will occur promptly such that the use of the
bridge broker[s]-dealer[s] would not facilitate such transfer to one or
more qualified broker-dealers; or (2) the transfer of such customer
accounts to the bridge broker[s]-dealer[s] would materially interfere
with the ability of the FDIC to avoid or mitigate serious adverse
effects on financial stability or economic conditions in the United
States.\67\ The two conditions in paragraph (b) of the proposed rule
are contained in Title II and are provided in the proposed rule for
ease and clarity and to make it clear the transfer to a bridge broker-
dealer will take place unless a transfer to a qualified broker-dealer
is imminent.\68\ The use of the word ``promptly'' in the proposed rule,
in this context, is intended to emphasize the urgency of transferring
customer accounts, customer name securities, and customer property
either to a qualified broker-dealer or to a bridge broker-dealer as
soon as practicable to allow customers the earliest possible access to
their accounts.
---------------------------------------------------------------------------

\64\ 12 U.S.C. 5390.
\65\ See 12 U.S.C. 5390(h)(1)(A) (granting general power to form
bridge financial companies). See also 12 U.S.C. 5390(h)(2)(H)(i)
(granting authority to organize one or more bridge financial
companies with respect to a covered broker-dealer).
\66\ See Sec. Sec. 380.63 and 302.103, as proposed. See also 12
U.S.C. 5390(h)(2)(H) (granting the Corporation as receiver authority
to organize one or more bridge financial companies with respect to a
covered broker-dealer).
\67\ See Sec. Sec. 380.63(b) and 302.103(b), as proposed. See
also 12 U.S.C. 5390(a)(1)(O)(i)(I) and (II) (listing the specific
conditions under which customer accounts would not be transferred to
a bridge financial company if it was organized).
\68\ 12 U.S.C. 5390(a)(1)(O)(i)(I) and (II).
---------------------------------------------------------------------------

Paragraph (c) of this section of the proposed rule states that the
Corporation as receiver for the covered broker-dealer also may transfer
to such bridge broker[s]-dealer[s] any other assets and liabilities of
the covered broker-dealer (including non-customer accounts and any
associated property) as the Corporation may, in its discretion,
determine to be appropriate. Paragraph (c) is based upon the broad
authority of the Corporation as receiver to transfer any assets or
liabilities of the covered broker-dealer to a bridge financial company
in accordance with, and subject to the requirements of, section
210(h)(5) of the Dodd-Frank Act \69\ and is designed to facilitate the

[[Page 10803]]

receiver's ability to continue the covered broker-dealer's operations,
minimize systemic risk, and maximize the value of the assets of the
receivership.\70\ The transfer of assets and liabilities to a bridge
broker-dealer under the proposed rule would enable the receiver to
continue the day-to-day operations of the broker-dealer and facilitate
the maximization of the value of the assets of the receivership by
making it possible to avoid a forced or other distressed sale of the
assets of the covered broker-dealer. In addition, the ability to
continue the operations of the covered broker-dealer may help mitigate
the impact of the failure of the covered broker-dealer on other market
participants and financial market utilities and thereby minimize
systemic risk.
---------------------------------------------------------------------------

\69\ See 12 U.S.C. 5390(h)(5)(A) (providing that the receiver
may transfer any assets and liabilities of a covered financial
company). The statute sets forth certain restrictions and
limitations that are not affected by this proposed rule. See, e.g.,
12 U.S.C. 5390(h)(1)(B)(ii) (restricting the assumption of
liabilities that count as regulatory capital by the bridge financial
company) and 12 U.S.C. 5390(h)(5)(F) (requiring that the aggregate
liabilities transferred to the bridge financial company may not
exceed the aggregate amount of assets transferred).
\70\ See Sec. Sec. 380.63(f) and 302.103(f), as proposed. See
also 12 U.S.C. 5390(h)(5) (granting authority to the Corporation as
receiver to transfer assets and liabilities of a covered financial
company to a bridge financial company). Similarly, under Title II,
the Corporation, as receiver for a covered broker-dealer, may
approve articles of association for such bridge broker-dealer. See
12 U.S.C. 5390(h)(2)(H)(i). The bridge broker-dealer would also be
subject to the federal securities laws and all requirements with
respect to being a member of a self-regulatory organization, unless
exempted from any such requirements by the Commission as is
necessary or appropriate in the public interest or for the
protection of investors. See 12 U.S.C. 5390(h)(2)(H)(ii).
---------------------------------------------------------------------------

Finally, paragraph (c) of this section of the proposed rule
clarifies that the transfer to a bridge broker-dealer of any account or
property pursuant to this section does not create any implication that
the holder of such an account qualifies as a ``customer'' or that the
property so transferred qualifies as ``customer property'' or
``customer name securities'' within the meaning of SIPA or within the
meaning of the rule. Under Title II, the Corporation may transfer all
the assets of a covered broker-dealer to a bridge broker-dealer.\71\
Such a transfer of assets may include, for example, securities that
were sold to the covered broker-dealer under reverse repurchase
agreements. Under the terms of a typical reverse repurchase agreement,
it is common for the broker-dealer to be able to use the purchased
securities for its own purposes. In contrast, Commission rules
specifically protect customer funds and securities and essentially
forbid broker-dealers from using customer assets to finance any part of
their businesses unrelated to servicing securities customers.\72\ An
integral component of the broker-dealer customer protection regime is
that, under SIPA, customers have preferred status relative to general
creditors with respect to customer property and customer name
securities.\73\ Given the preferred status of customers, litigation has
arisen regarding whether, consistent with the above example, claims of
repo counterparties are ``customer'' claims under SIPA.\74\ In
implementing section 205 of the Dodd-Frank Act, consistent with the
statutory directive contained therein,\75\ the Corporation and the
Commission are seeking to ensure that customers of the covered broker-
dealer under Title II are treated in a manner at least as beneficial as
would have been the case had the broker-dealer been liquidated under
SIPA.\76\ Accordingly, the Commission and the Corporation are proposing
to preserve customer status as would be the case in a SIPA proceeding.
Thus, the proposed rule clarifies that moving assets to a bridge
financial company as part of a Title II orderly liquidation is not
determinative as to whether the holder of such an account qualifies as
a ``customer'' or if the property so transferred qualifies as
``customer property'' or ``customer name securities.'' Rather, the
status of the account holder and the assets in the orderly liquidation
of a covered broker-dealer would depend upon whether the claimant would
be a customer under SIPA.\77\
---------------------------------------------------------------------------

\71\ See 12 U.S.C 5390(h)(2)(H) and 12 U.S.C. 5390(h)(5)
(granting authority to the Corporation as receiver to transfer
assets and liabilities of a covered broker-dealer).
\72\ See Net Capital Requirements for Brokers and Dealers,
Exchange Act Release No. 21651 (Jan. 11, 1985), 50 FR 2690, 2690
(Jan. 18, 1985). See also Broker-Dealers; Maintenance of Certain
Basic Reserves, Exchange Act Release No. 9856 (Nov. 10, 1972), 37 FR
25224, 25224 (Nov. 29, 1972).
\73\ See 15 U.S.C. 78fff(a).
\74\ See, e.g., In re Lehman Brothers Inc., 492 B.R. 379 (Bankr.
S.D.N.Y. 2013), aff'd, 506 B.R. 346 (S.D.N.Y. 2014).
\75\ See 12 U.S.C. 5385(f)(1) (pertaining to the statutory
requirements with respect to the satisfaction of claims).
\76\ Id.
\77\ See 15 U.S.C. 78lll(2)(B) (SIPA definition of customer).
See also 12 U.S.C. 5381(a)(10) (defining customer, customer name
securities, customer property, and net equity in the context of a
covered broker-dealer as the same meanings such terms have in
section 16 of SIPA (15 U.S.C. 78lll)); In re Bernard L. Madoff Inv.
Sec. LLC, 654 F.3d 229, 236 (2d Cir. 2011).
---------------------------------------------------------------------------

2. Other Provisions With Respect to Bridge Broker-Dealer
The proposed rule addresses certain matters relating to account
transfers to the bridge broker-dealer.\78\ The process set forth in
this part of the proposed rule is designed to put the customer in the
position the customer would have been in had the broker-dealer been
liquidated in a SIPA proceeding.\79\ In a SIPA proceeding, the trustee
would generally handle customer accounts in two ways. First, a trustee
may sell or otherwise transfer to another SIPC member, without the
consent of any customer, all or any part of a customer's account, as a
way to return customer property to the control of the customer.\80\
Such account transfers are separate from the customer claim process.
Customer account transfers are useful insofar as they serve to allow
customers to resume trading more quickly and minimize disruption in the
securities markets. If it is not practicable to transfer customer
accounts, then the second way of returning customer property to the
control of customers is through the customer claims process. Under
bankruptcy court supervision, the SIPA trustee will determine each
customer's net equity and the amount of customer property available for
customers.\81\ Once the SIPA trustee determines that a claim is a
customer claim (an ``allowed customer claim''), the customer will be
entitled to a ratable share of the fund of customer property. As
discussed above, SIPA defines ``customer property'' to generally
include all the customer-related property held by the broker-
dealer.\82\ Allowed customer claims are determined on the basis of a
customer's net equity,\83\ which, as described above, generally is the
dollar value of a customer's account on the filing date of the SIPA
proceeding less indebtedness of the customer to the broker-dealer on
the filing date.\84\ Once the trustee determines the fund of customer
property and customer net equity claims, the trustee can establish each
customer's pro rata share of the fund of customer property. Customer
net equity claims generally are satisfied to the extent possible by
providing the customer with the identical securities owned by that
customer as of the day the SIPA proceeding was commenced.\85\
---------------------------------------------------------------------------

\78\ See Sec. Sec. 380.63(d) and 302.103(d), as proposed.
\79\ See 12 U.S.C. 5385(f) (obligations of a covered broker-
dealer to customers shall be satisfied in the manner and in an
amount at least as beneficial to the customer as would have been the
case had the actual proceeds realized from the liquidation of the
covered broker-dealer been distributed in a proceeding under SIPA).
\80\ See 15 U.S.C. 78fff-2(f).
\81\ See generally 15 U.S.C. 78fff.
\82\ See 15 U.S.C. 78lll(4). See Section II.A.1.
\83\ See 15 U.S.C. 78lll(11).
\84\ Id. See Section II.A.1.
\85\ See 15 U.S.C. 78fff-2(d).
---------------------------------------------------------------------------

Although a Title II orderly liquidation is under a different
statutory authority, the process for determining and satisfying
customer claims would follow a substantially similar process to a SIPA
proceeding. Upon the commencement of a SIPA liquidation, customers'
cash and securities held by the broker-dealer are returned to customers
on a pro rata

[[Page 10804]]

basis.\86\ If sufficient funds are not available at the broker-dealer
to satisfy customer net equity claims, SIPC advances would be used to
supplement the distribution, up to a ceiling of $500,000 per customer,
including a maximum of $250,000 for cash claims.\87\ When applicable,
SIPC will return securities that are registered in the customer's name
or are in the process of being registered directly to each
customer.\88\ As in a SIPA proceeding, in a Title II liquidation of a
covered broker-dealer, the process of determining net equity would thus
begin with a calculation of customers' net equity. A customer's net
equity claim against a covered broker-dealer would be deemed to be
satisfied and discharged to the extent that customer property of the
covered broker-dealer, along with property made available through
advances from SIPC, is transferred and allocated to the customer's
account at the bridge broker-dealer. The bridge broker-dealer would
undertake the obligations of the covered broker-dealer only with
respect to such property. The Corporation, as receiver, in consultation
with SIPC, as trustee, would allocate customer property and property
made available through advances from SIPC in a manner consistent with
SIPA and with SIPC's normal practices thereunder. The calculation of
net equity would not be affected by the assumption of liability by the
bridge broker-dealer to each customer in connection with the property
transferred to the bridge broker-dealer. The use of the bridge broker-
dealer is designed to give customers access to their accounts as
quickly as practicable, while ensuring that customers receive assets in
the form and amount that they would receive in a SIPA liquidation.\89\
---------------------------------------------------------------------------

\86\ 15 U.S.C. 8fff-2(b).
\87\ 15 U.S.C. 8fff-3(a).
\88\ 15 U.S.C. 8fff-2(b)(2).
\89\ This outcome would satisfy the requirements of section
205(f)(1) of the Dodd-Frank Act. See 12 U.S.C. 5385(f)(1) (stating
that notwithstanding any other provision of this title, all
obligations of a covered broker or dealer or of any bridge financial
company established with respect to such covered broker or dealer to
a customer relating to, or net equity claims based upon, customer
property or customer name securities shall be promptly discharged by
SIPC, the Corporation, or the bridge financial company, as
applicable, by the delivery of securities or the making of payments
to or for the account of such customer, in a manner and in an amount
at least as beneficial to the customer as would have been the case
had the actual proceeds realized from the liquidation of the covered
broker or dealer under this title been distributed in a proceeding
under SIPA without the appointment of the Corporation as receiver
and without any transfer of assets or liabilities to a bridge
financial company, and with a filing date as of the date on which
the Corporation is appointed as receiver).
---------------------------------------------------------------------------

The proposed rule also provides that allocations to customer
accounts at the bridge broker-dealer may initially be derived from
estimates based upon the books and records of the covered broker-dealer
or other information deemed relevant by the Corporation as receiver, in
consultation with SIPC as trustee.\90\ This approach is based upon
experience with SIPA liquidations where, for example, there were
difficulties reconciling the broker-dealer's records with the records
of central counterparties or other counterparties or other factors that
caused delay in verifying customer accounts.\91\ This provision of the
proposed rule is designed to facilitate access to accounts for the
customers at the bridge broker-dealer as soon as is practicable under
the circumstances while facilitating the refinement of the calculation
of allocations of customer property to customer accounts as additional
information becomes available. This process will help ensure both that
customers have access to their customer accounts as quickly as
practicable and that customer property ultimately will be fairly and
accurately allocated.
---------------------------------------------------------------------------

\90\ See Sec. Sec. 380.63(d) and 302.103(d), as proposed. See
also 12 U.S.C. 5385(h) (granting the Corporation and the Commission
authority to adopt rules to implement section 205 of the Dodd-Frank
Act).
\91\ See, e.g., In re Lehman Brothers Inc., (Bankr. S.D.N.Y.
2008), Trustee's Preliminary Investigation Report and
Recommendations, available at https://dm.epiq11.com/LBI/Project#).
---------------------------------------------------------------------------

The proposed rule also states that the bridge broker-dealer
undertakes the obligations of a covered broker-dealer with respect to
each person holding an account transferred to the bridge broker-dealer,
but only to the extent of the property (and SIPC funds) so transferred
and held by the bridge broker-dealer with respect to that person's
account.\92\ This portion of the proposed rule provides customers of
the bridge broker-dealer with the assurance that the securities laws
relating to the protection of customer property will apply to customers
of a bridge broker-dealer in the same manner as they apply to customers
of a broker-dealer which is being liquidated outside of Title II.\93\
The Agencies believe that such assurances would help to reduce
uncertainty regarding the protections that will be offered to
customers.
---------------------------------------------------------------------------

\92\ See Sec. Sec. 380.63(d) and 302.103(d), as proposed.
\93\ See also 12 U.S.C. 5390(h)(2)(H)(ii) (stating that the
bridge financial company shall be subject to the federal securities
laws and all requirements with respect to being a member of a self-
regulatory organization, unless exempted from any such requirements
by the Commission, as is necessary or appropriate in the public
interest or for the protection of investors).
---------------------------------------------------------------------------

This portion of the proposed rule also provides that the bridge
broker-dealer would not have any obligations with respect to any
customer property or other property that is not transferred from the
covered broker-dealer to the bridge broker-dealer.\94\ A customer's net
equity claim remains with the covered broker-dealer and, in most cases,
would be satisfied, in whole or in part, by transferring the customer's
account together with customer property, to the bridge broker-
dealer.\95\ In the event that a customer's account and the associated
account property is not so transferred, the customer's net equity claim
would be subject to satisfaction by SIPC as the trustee for the covered
broker-dealer in the same manner and to the same extent as in a SIPA
proceeding.\96\
---------------------------------------------------------------------------

\94\ See Sec. Sec. 380.63(d) and 302.103(d), as proposed.
\95\ See Sec. Sec. 380.63(d) and 302.103(d), as proposed.
\96\ See 12 U.S.C. 5385(f)(2).
---------------------------------------------------------------------------

The bridge broker-dealer section of the proposed rule \97\ also
provides that the transfer of assets or liabilities of a covered
broker-dealer, including customer accounts and all associated customer
name securities and customer property, assets and liabilities held by a
covered broker-dealer for non-customer creditors, and assets and
liabilities associated with any trust or custody business, to a bridge
broker-dealer, would be effective without any consent, authorization,
or approval of any person or entity, including but not limited to, any
customer, contract party, governmental authority, or court.\98\ This
section is based on the Corporation's authority, under three separate
statutory provisions of Title II.\99\ The broad language of this
paragraph of the proposed rule is intended to give full effect to the
statutory provisions of the Dodd-Frank Act regarding transfers of
assets and liabilities of a covered financial company,\100\ which
represent an important recognition by Congress that, in order to ensure
the financial stability of the United States following the failure of a
covered financial company, the Corporation as receiver must be free to
determine which

[[Page 10805]]

contracts, assets, and liabilities of the covered financial company are
to be transferred to a bridge financial company, and to transfer such
contracts, assets, and liabilities expeditiously and irrespective of
whether any other person or entity consents to or approves of the
transfer. The impracticality of requiring the Corporation as receiver
to obtain the consent or approval of others in order to effectuate a
transfer of the failed company's contracts, assets, and liabilities
arises whether the consent or approval otherwise would be required as a
consequence of laws, regulations, or contractual provisions, including
as a result of options, rights of first refusal, or similar contractual
rights, or any other restraints on alienation or transfer. Paragraph
(e) would apply regardless of the identity of the holder of the
restraint on alienation or transfer, whether such holder is a local,
state, federal or foreign government, a governmental department or
other governmental body of any sort, a court or other tribunal, a
corporation, partnership, trust, or other type of company or entity, or
an individual, and regardless of the source of the restraint on
alienation or transfer, whether a statute, regulation, common law, or
contract. It is the Corporation's view that the transfer of any
contract to a bridge financial company would not result in a breach of
the contract and would not give rise to a claim or liability for
damages. In addition, under section 210(h)(2)(E) of the Dodd-Frank Act,
no additional assignment or further assurance is required of any person
or entity to effectuate such a transfer of assets or liabilities by the
Corporation as receiver for the covered broker-dealer. Paragraph (e) of
the proposed rule would facilitate the prompt transfer of assets and
liabilities of a covered broker-dealer to a bridge broker-dealer and
enhance the Corporation's ability to maintain critical operations of
the covered broker-dealer. Rapid action to set-up a bridge broker-
dealer and transfer assets, including customer accounts and customer
property, may be critical to preserving financial stability and to
giving customers the promptest possible access to their accounts.
---------------------------------------------------------------------------

\97\ See Sec. Sec. 380.63(e) and 302.103(e), as proposed.
\98\ See Sec. Sec. 380.63(e) and 302.103(e), as proposed; see
also 12 U.S.C. 5390(h)(5)(D).
\99\ See 12 U.S.C. 5390(h)(5)(D). See also 12 U.S.C.
5390(a)(1)(G); 12 U.S.C. 5390(a)(1)(O). Notably, the power to
transfer customer accounts and customer property without customer
consent is also found in SIPA. See 15 U.S.C. 78fff-2(f).
\100\ The proposed rule text omits the reference to ``further''
approvals found in 12 U.S.C. 5390(h)(5)(D). The reference in the
statute is to the government approvals needed in connection with
organizing the bridge financial company, such as the approval of the
articles of association and by-laws, as established under 12 U.S.C.
5390(h). These approvals will already have been obtained prior to
any transfer under the proposed rule, making the reference to
``further'' approvals unnecessary and superfluous.
---------------------------------------------------------------------------

Paragraph (f) of the bridge broker-dealer provision of the proposed
rule provides for the succession of the bridge broker-dealer to the
rights, powers, authorities, or privileges of the covered broker-
dealer.\101\ This provision of the proposed rule draws directly from
authority provided in Title II and is designed to facilitate the
ability of the Corporation as receiver to operate the bridge broker-
dealer.\102\ Pursuant to paragraph (g) of the bridge broker-dealer
provision,\103\ the bridge broker-dealer would also be subject to the
federal securities laws and all requirements with respect to being a
member of a self-regulatory organization, unless exempted from any such
requirements by the Commission as is necessary or appropriate in the
public interest or for the protection of investors.\104\ This provision
of the proposed rule also draws closely upon Title II.\105\
---------------------------------------------------------------------------

\101\ See Sec. Sec. 380.63(f) and 302.103(f), as proposed.
\102\ See 12 U.S.C. 5390(h)(2)(H)(i).
\103\ See Sec. Sec. 380.63(g) and 302.103(g), as proposed.
\104\ See 12 U.S.C. 5390(h)(2)(H)(ii).
\105\ Id.
---------------------------------------------------------------------------

Paragraph (h) of the bridge broker-dealer provision of the proposed
rule states that at the end of the term of existence of the bridge
broker-dealer, any proceeds or other assets that remain after payment
of all administrative expenses of the bridge broker-dealer and all
other claims against the bridge broker-dealer would be distributed to
the Corporation as receiver for the related covered broker-dealer.\106\
Stated differently, the residual value in the bridge broker-dealer
after payment of its obligations would benefit the creditors of the
covered broker-dealer in satisfaction of their claims.
---------------------------------------------------------------------------

\106\ See Sec. Sec. 380.63(h) and 302.103(h), as proposed. See
also 12 U.S.C. 5385(d)(2); 12 U.S.C. 5390(h)(15)(B).
---------------------------------------------------------------------------

E. Claims of Customers and Other Creditors of a Covered Broker-Dealer
\107\
---------------------------------------------------------------------------

\107\ If adopted, the section of the proposed rule on claims of
customers and other creditors of a covered broker-dealer will appear
in 12 CFR 380.64 for purposes of the Corporation and 17 CFR 302.104
for purposes of the Commission. The rule text in both CFRs will be
identical.
---------------------------------------------------------------------------

The proposed section on the claims of the covered broker-dealer's
customers and other creditors would address the claims process for
those customers and other creditors as well as the respective roles of
the trustee and the receiver with respect to those claims.\108\ The
proposed section would provide SIPC with the authority as trustee for
the covered broker-dealer to make determinations, allocations, and
advances in a manner consistent with its customary practices in a
liquidation under SIPA.\109\ Specifically, the proposed section
provides that the allocation of customer property, advances from SIPC,
and delivery of customer name securities to each customer or to its
customer account at a bridge broker or dealer, in partial or complete
satisfaction of such customer's net equity claims as of the close of
business on the appointment date, shall be in a manner, including form
and timing, and in an amount at least as beneficial to such customer as
would have been the case had the covered broker or dealer been
liquidated under SIPA.\110\ Each customer of a covered broker-dealer
would receive cash and securities at least equal in amount and value,
as of the appointment date, to what that customer would have received
in a SIPA proceeding.\111\
---------------------------------------------------------------------------

\108\ See Sec. Sec. 380.64 and 302.104, as proposed.
\109\ See Sec. Sec. 380.64(a)(4) and 302.104(a)(4), as
proposed. See also 15 U.S.C. 78aaa et seq.
\110\ See Sec. Sec. 380.64(a)(4) and 302.104(a)(4), as
proposed.
\111\ See 15 U.S.C. 78aaa et seq.
---------------------------------------------------------------------------

This proposed section further addresses certain procedural aspects
of the claims determination process in accordance with the requirements
set forth in section 210(a)(2) through (5) of the Dodd-Frank Act.\112\
The proposed section describes the role of the receiver of a covered
broker-dealer with respect to claims and provides for the publication
and mailing of notices to creditors of the covered broker-dealer by the
receiver in a manner consistent with both SIPA and the notice
procedures applicable to covered financial companies generally under
section 210(a)(2) of the Dodd-Frank Act.\113\ The proposed section
provides that the notice of the Corporation's appointment as receiver
must be accompanied by notice of SIPC's appointment as trustee.\114\ In
addition, the Corporation, as receiver, would consult with SIPC, as
trustee, regarding procedures for filing a claim including the form of
claim and the filing instructions, to facilitate a process that is
consistent with SIPC's general practices.\115\ The claim form would
include a provision permitting a claimant to claim customer status, if
applicable, but the inclusion of any such claim to customer status on
the claim form would not be determinative of customer status under
SIPA.
---------------------------------------------------------------------------

\112\ 12 U.S.C. 5390(a)(2) through (5).
\113\ See Sec. Sec. 380.64(b) and 302.104(b), as proposed. See
also 12 U.S.C. 5390(a)(2).
\114\ See Sec. Sec. 380.64(b)(1) and 302.104(b)(1), as
proposed.
\115\ See Sec. Sec. 380.64(b)(2) and 302.104(b)(2), as
proposed.
---------------------------------------------------------------------------

The proposed rule would set the claims bar date as the date
following the expiration of the six-month period beginning on the date
that the notice to creditors is first published.\116\ The claims bar
date in the proposed rule is consistent with section 8(a) of SIPA,
which provides for the barring of claims after the expiration of the
six-month period beginning upon publication.\117\ The six-month period
is also consistent

[[Page 10806]]

with section 210(a)(2)(B)(i) of the Dodd-Frank Act, which requires that
the claims bar date be no less than ninety days after first
publication.\118\ As required by section 210(a)(3)(C)(i) of the Dodd-
Frank Act, the proposed rule provides that any claim filed after the
claims bar date shall be disallowed, and such disallowance shall be
final, except that a claim filed after the claims bar date would be
considered by the receiver if (i) the claimant did not receive notice
of the appointment of the receiver in time to file a claim before the
claim date, and (ii) the claim is filed in time to permit payment of
the claim, as provided by section 210(a)(3)(C)(ii) of the Dodd-Frank
Act.\119\ This exception for late-filed claims due to lack of notice to
the claimant would serve a similar purpose (i.e., to ensure a
meaningful opportunity for claimants to participate in the claims
process) as the ``reasonable, fixed extension of time'' that may be
granted to the otherwise applicable six-month deadline under SIPA to
certain specified classes of claimants.\120\
---------------------------------------------------------------------------

\116\ See Sec. Sec. 380.64(b)(3) and 302.104(b)(3), as proposed
(discussing claims bar date).
\117\ See 15 U.S.C. 78fff-2(a).
\118\ See 12 U.S.C. 5390(a)(2)(B)(i).
\119\ See Sec. Sec. 380.64(b)(3) and 302.104(b)(3), as
proposed. See also 12 U.S.C. 5390(a)(3)(C)(i) and (ii).
\120\ See 15 U.S.C. 78fff-2(a)(3).
---------------------------------------------------------------------------

Section 8(a)(3) of SIPA provides that a customer who wants to
assure that its net equity claim is paid out of customer property must
file its claim with the SIPA trustee within a period of time set by the
court (not exceeding 60 days after the date of publication of the
notice provided in section 8(a)(1) of SIPA) notwithstanding that the
claims bar date is later.\121\ The proposed rule conforms to this
section of SIPA by providing that any claim for net equity filed more
than 60 days after the notice to creditors is first published need not
be paid or satisfied in whole or in part out of customer property and,
to the extent such claim is paid by funds advanced by SIPC, it would be
satisfied in cash or securities, or both, as SIPC, the trustee,
determines is most economical to the receivership estate.\122\
---------------------------------------------------------------------------

\121\ See 15 U.S.C. 78fff-2(a)(3) and 15 U.S.C. 78fff-2(a)(1).
\122\ See Sec. Sec. 380.64(b)(3) and 302.104(b)(3), as
proposed. See also 15 U.S.C. 78fff-2(a)(3).
---------------------------------------------------------------------------

Under the proposed rule, the Corporation as receiver would be
required to notify a claimant whether it allows a claim within the 180-
day period \123\ as such time period may be extended by written
agreement,\124\ or the expedited 90-day period,\125\ whichever would be
applicable. The process established for the determination of claims by
customers of a covered broker-dealer for customer property or customer
name securities would constitute the exclusive process for the
determination of such claims.\126\ This process corresponds to the SIPA
provision that requires that customer claims to customer property be
determined pro rata based on each customer's net equity applied to all
customer property as a whole.\127\ While the Dodd-Frank Act provides
for expedited treatment of certain claims within 90 days, given that
all customers may have preferred status with respect to customer
property and customer name securities, no one customer's claim, or
group of customer claims, would be treated in an expedited manner ahead
of other customers' claims. Consequently, the concept of expedited
relief would not apply to customer claims.\128\ The receiver's
determination to allow or disallow a claim in whole or in part would
utilize the determinations made by SIPC, as trustee, with respect to
customer status, claims for net equity, claims for customer name
securities, and whether property held by the covered broker-dealer
qualifies as customer property.\129\ A claimant may seek a de novo
judicial review of any claim that is disallowed in whole or in part by
the receiver, including but not limited to any claim disallowed in
whole or part based upon any determination made by SIPC.\130\
---------------------------------------------------------------------------

\123\ See Sec. Sec. 380.64(c) and 302.104(c), as proposed. See
also 12 U.S.C. 5390(a)(3)(A)(i).
\124\ See 15 U.S.C. 5390(a)(3)(A).
\125\ See Sec. Sec. 380.64(c) and 302.104(c), as proposed. See
also 12 U.S.C. 5390(a)(5)(B).
\126\ See Sec. Sec. 380.64(c) and 302.104(c), as proposed.
\127\ See 15 U.S.C. 78fff-2.
\128\ See Sec. Sec. 380.64(c) and 302.104(c), as proposed.
\129\ Id.
\130\ See Sec. Sec. 380.64(d) and 302.104(d), as proposed
(stating thathe claimant may seek a judicial determination of any
claim disallowed, in whole or in part, by the Corporation as
receiver, including any claim disallowed based upon any
determination(s) made by SIPC as trustee by the appropriate district
or territorial court of the United States). See also 12 U.S.C.
5390(a)(4) and (5).
---------------------------------------------------------------------------

F. Additional Proposed Sections

In addition to the previously discussed proposed sections, the
Agencies propose to include sections in the proposed rule addressing:
(1) The priorities for unsecured claims against a covered broker-
dealer;\131\ (2) the administrative expenses of SIPC;\132\ and (3)
QFCs.\133\ The Dodd-Frank Act sets forth special priorities for the
payment of claims of general unsecured creditors of a covered broker-
dealer, which would be addressed in the proposed section on priorities
for unsecured claims against a covered broker-dealer.\134\ The
priorities for unsecured claims against a covered broker-dealer include
claims for unsatisfied net equity of a customer and certain
administrative expenses of the receiver and SIPC.\135\ The priorities
set forth in the proposed rule express the cumulative statutory
requirements set forth in Title II.\136\ First, the priorities provide
that the administrative expenses of SIPC as trustee for a covered
broker-dealer would be reimbursed pro rata with administrative expenses
of the receiver for the covered broker-dealer.\137\ Second, the amounts
paid by the Corporation as receiver to customers or SIPC would be
reimbursed on a pro rata basis with amounts owed to the United States,
including amounts borrowed from the U.S. Treasury for the orderly
liquidation fund.\138\ Third, the amounts advanced by SIPC for the
satisfaction of customer net equity claims would be reimbursed
subsequent to amounts owed to the United States, but before all other
claims.\139\
---------------------------------------------------------------------------

\131\ If adopted, the priorities for unsecured claims against a
covered broker-dealer section will appear in 12 CFR 380.65 for
purposes of the Corporation and 17 CFR 302.105 for purposes of the
Commission. The rule text in both CFRs will be identical.
\132\ If adopted, the SIPC administrative expenses section will
appear in 12 CFR 380.66 for purposes of the Corporation and 17 CFR
302.106 for purposes of the Commission. The rule text in both CFRs
will be identical.
\133\ If adopted, the QFC section will appear in 12 CFR 380.67
for purposes of the Corporation and 17 CFR 302.107 for purposes of
the Commission. The rule text in both CFRs will be identical.
\134\ See 12 U.S.C. 5390(b)(6) (providing the priority of
expenses and unsecured claims in the orderly liquidation of SIPC
members).
\135\ See Sec. Sec. 380.65 and 302.105, as proposed.
\136\ See 12 U.S.C. 5390(b)(6) (providing the priority of
expenses and unsecured claims in the orderly liquidation of SIPC
members). See also Sec. Sec. 380.65 and 302.105, as proposed.
\137\ See Sec. Sec. 380.65(a) and 302.105(a), as proposed. See
also 12 U.S.C. 5390(b)(6)(A).
\138\ See Sec. Sec. 380.65(b) and 302.105(b), as proposed. See
also 12 U.S.C. 5390(b)(6)(B); 12 U.S.C. 5390(n) (establishing the
``orderly liquidation fund'' available to the Corporation to carry
out the authorities granted to it under Title II).
\139\ See Sec. Sec. 380.65(c) and 302.105(c), as proposed. See
also 12 U.S.C. 5390(b)(6)(C).
---------------------------------------------------------------------------

Title II provides that SIPC is entitled to recover administrative
expenses incurred in performing its responsibilities under section 205
on an equal basis with the Corporation.\140\ Title II also sets forth a
description of the administrative expenses of the receiver.\141\ In
order to provide additional clarity as to the types of administrative
expenses that SIPC would be entitled to recover in connection with its
role as trustee for the covered broker-dealer, the proposed rule
provides that SIPC, in connection

[[Page 10807]]

with its role as trustee for the covered broker-dealer, has the
authority to ``utilize the services of private persons, including
private attorneys, accountants, consultants, advisors, outside experts
and other third party professionals.'' The section further provides
SIPC with an allowed administrative expense claim with respect to any
amounts paid by SIPC for services provided by these persons if those
services are ``practicable, efficient and cost-effective.''\142\ The
proposed definition of administrative expenses of SIPC conforms to both
the definition of administrative expenses of the Corporation as
receiver and the costs and expenses of administration reimbursable to
SIPC as trustee in the liquidation of a broker-dealer under SIPA.\143\
Specifically, the proposed definition includes ``the costs and expenses
of such attorneys, accountants, consultants, advisors, outside experts
and other third parties, and other proper expenses that would be
allowable to a third party trustee under 15 U.S.C. 78eee(b)(5)(A),
including the costs and expenses of SIPC employees that would be
allowable pursuant to 15 U.S.C. 78fff(e).''\144\ The proposed
definition excludes advances from SIPC to satisfy customer claims for
net equity because the Dodd-Frank Act specifies that those advances are
treated differently than administrative expenses with respect to the
priority of payment.\145\
---------------------------------------------------------------------------

\140\ See 12 U.S.C. 5390(b)(6)(A). The regulation governing the
Corporation's administrative expenses in its role as receiver under
Title II is located at 12 CFR 380.22.
\141\ See 12 U.S.C. 5381(a)(1).
\142\ See Sec. Sec. 380.66(a) and 302.106(a), as proposed.
\143\ See Sec. Sec. 380.66(a) and 302.106(a), as proposed. See
also 12 U.S.C. 5381(a)(1) (defining administrative expenses of the
receiver); 15 U.S.C. 78eee(5) (providing for compensation for
services and reimbursement of expenses).
\144\ See Sec. Sec. 380.66(a) and 302.106(a), as proposed. See
also 15 U.S.C. 78eee(b)(5)(A); 15 U.S.C. 78fff(e).
\145\ See Sec. Sec. 380.66(b) and 302.106(b), as proposed
(defining the term administrative expenses of SIPC). See also 12
U.S.C. 5390(b)(6)(C) (stating SIPC's entitlement to recover any
amounts paid out to meet its obligations under section 205 and under
SIPA).
---------------------------------------------------------------------------

Lastly, the proposed section on QFCs states that QFCs are governed
in accordance with Title II.\146\ Paragraph (b)(4) of section 205 of
the Dodd-Frank Act states in pertinent part that notwithstanding any
provision of SIPA the rights and obligations of any party to a
qualified financial contract (as the term is defined in section
210(c)(8)) to which a covered broker or dealer for which the
Corporation has been appointed receiver is a party shall be governed
exclusively by section 210, including the limitations and restrictions
contained in section 210(c)(10)(B).\147\ Paragraph (c)(8)(A) of section
210 states that no person shall be stayed or prohibited from
exercising: (i) Any right that such person has to cause the
termination, liquidation, or acceleration of any qualified financial
contract with a covered financial company which arises upon the date of
appointment of the Corporation as receiver for such covered financial
company or at any time after such appointment; (ii) any right under any
security agreement or arrangement or other credit enhancement related
to one or more qualified financial contracts described in clause (i);
or (iii) any right to offset or net out any termination value, payment
amount, or other transfer obligation arising under or in connection
with one or more contracts or agreements described in clause (i),
including any master agreement for such contracts or agreements.''\148\
Paragraph (c)(10)(B)(i)(I) and (II) of section 210 provides in
pertinent part that a person who is a party to a QFC with a covered
financial company may not exercise any right that such person has to
terminate, liquidate, or net such contract under paragraph (c)(8)(A) of
section 210 solely by reason of or incidental to the appointment under
Title II of the Corporation as receiver for the covered financial
company: (1) Until 5:00 p.m. eastern time on the business day following
the date of the appointment; or (2) after the person has received
notice that the contract has been transferred pursuant to paragraph
(c)(9)(A) of section 210.\149\ The proposed rule reflects these
statutory directives and states: ``The rights and obligations of any
party to a qualified financial contract to which a covered broker or
dealer is a party shall be governed exclusively by 12 U.S.C. 5390,
including the limitations and restrictions contained in 12 U.S.C.
5390(c)(10)(B), and any regulations promulgated thereunder.''\150\
---------------------------------------------------------------------------

\146\ See Sec. Sec. 380.67 and 302.107, as proposed.
\147\ See 12 U.S.C. 5385(b)(4) (stating that notwithstanding any
provision of SIPA .the rights and obligations of any party to a
qualified financial contract to which a covered broker or dealer is
a party shall be governed exclusively by section 210 of the Dodd-
Frank Act).
\148\ See 12 U.S.C. 5390(c)(8)(A).
\149\ See 12 U.S.C. 5390(c)(10)(B).
\150\ See Sec. Sec. 380.67 and 302.107, as proposed.
---------------------------------------------------------------------------

III. Requests for Comments

A. In General

The Agencies generally request comment on the proposal to implement
Title II's orderly liquidation of covered broker-dealers provisions.
The Agencies invite interested persons to submit written comments on
any aspect of the proposed rule, in addition to the specific requests
for comment. Further, the Agencies invite comment on other matters that
might have an effect on the proposed rule contained in this release,
including any competitive impact.

B. Requests for Comment on Certain Specific Matters

In addition to the general request for comments, the Agencies
request comment with respect to the following specific questions:
1. In light of section 205(f)(1)'s requirement that customers in a
section 205 orderly liquidation receive distributions that are at least
as beneficial as what they would have received in a SIPA liquidation,
are there any circumstances in which the application of the proposed
rule would result in delivery or distributions to customers of
securities or cash, in connection with net equity claims, customer
property or customer name securities, in a manner and in an amount less
than such customers would receive if the covered broker-dealer were
subject to a SIPA liquidation? If yes, what are those circumstances?
Please be specific.
2. Would an orderly liquidation of a broker-dealer under the
approach described in the proposed rule have any unintended or adverse
impact(s) on customers or other classes of claimants? If yes, what are
those impacts? Are there other approach(es) that might be consistent
with the requirements of the Dodd-Frank Act and have fewer such
impacts? What are the other approach(es) that might eliminate or
minimize such unintended or adverse impact(s), and how would they do
so? Please be specific. What would be the costs or benefits associated
with such alternative approaches?
3. Would an orderly liquidation of a broker-dealer under the
approach described in the proposed rule have any unintended or adverse
impact(s) on market participants generally? If yes, what are those
impacts? Are there other approach(es) that might be consistent with the
requirements of the Dodd-Frank Act and have fewer such impacts? What
are the other approach(es) that might eliminate or minimize such
unintended or adverse impact(s), and how would they do so? Please be
specific. What would be the costs or benefits associated with such
alternative approaches?
4. Are there any matter(s) with respect to the orderly liquidation
of a covered broker-dealer under Title II of the Dodd-Frank Act that
are not currently addressed in the proposed rule, but that should be
addressed in a rulemaking under section 205(h) of the Dodd-Frank Act,
12 U.S.C. 5385(h)? If yes, what are

[[Page 10808]]

those matters, why should they be addressed, and how? Please be
specific.
5. Does the proposed rule clearly address the roles of the FDIC as
receiver and SIPC as trustee for the covered broker-dealer in a Title
II orderly liquidation? If not, how could the proposed rule be made
clearer?
6. Does the proposed rule clearly address the treatment of
customers and other classes of claimants and creditors in a Title II
orderly liquidation of a covered broker-dealer? Does the proposed rule
clearly address the claims bar date and the 60-day filing deadline for
payment of net equity claims out of customer property? If not, in what
respects could the proposed rule be made clearer and how?
7. Are the priorities for the allocation of customer property and
other assets of the covered broker-dealer clearly addressed by the
proposed rule? If not, in what respects could they be made clearer and
how?
8. Are the standards for judicial review of a claim that is
disallowed, in whole or in part, clearly addressed by the proposed
rule? If not, in what respects could the proposed rule be made clearer
and how?
9. Are the matters listed for inclusion in the protective decree
appropriate? Are there any other matters not mentioned that should be
included in the protective decree, and if so, why? Could the provision
of the protective decree clarifying that, if a protective decree were
filed on a date other than the appointment date, the protective
decree's filing date would be deemed be the appointment date, cause
harm to customers, other claimants, creditors, shareholders, or other
interested parties? If so, how? Are there alternative approaches that
would not have such impacts? If yes, please describe in detail and
provide information about associated costs or benefits.
10. Would customers be harmed by their inability to seek
determinations of their claims within the expedited 90-day period (as
provided by section 210(a)(5)(B) of the Dodd-Frank Act) rather than
within six-months (as provided by section 210(a)(3)(A)(i) of the Dodd-
Frank Act)? If so, how? If customers were permitted to seek expedited
determinations of their claims, would that allow them to ``jump ahead''
of other similarly-situated claimants? Would that be appropriate?
11. What are the expected costs to covered broker-dealers as a
result of this proposed rule?
12. Are there any costs or benefits of the proposed rule for
customers or other creditors of covered broker-dealers, or market
participants generally, that are not described above? Please describe.
13. What are the proposed rule's implications for systemic risk?
14. Are there any anticipated consequences of the proposed rule
that are not otherwise described in this release? Please be specific.

IV. Paperwork Reduction Act

The proposed rule would clarify the process for the orderly
liquidation of a covered broker-dealer under Title II of the Dodd-Frank
Act. The proposed rule addresses only the process to be used in the
liquidation of the covered broker-dealer and does not create any new,
or revise any existing, collection of information pursuant to the
Paperwork Reduction Act.\151\ Consequently, no information has been
submitted to the Office of Management and Budget for review.
---------------------------------------------------------------------------

\151\ 44 U.S.C. 3501 et seq.
---------------------------------------------------------------------------

The Agencies request comment on the assertion that the proposed
rule will not create any new, or revise any existing, collection of
information pursuant to the Paperwork Reduction Act.

V. Economic Analysis

A. Introduction and General Economic Considerations

The Commission and the Corporation are jointly proposing this rule
to implement provisions applicable to the orderly liquidation of
covered broker-dealers pursuant to section 205(h) of the Dodd-Frank Act
in manner that protects market participants by clearly establishing
expectations and equitable treatment for customers and creditors of
failed broker-dealers, as well as other market participants. The
Commission and the Corporation are mindful of the costs and benefits of
their respective rules. The following economic analysis seeks to
identify and consider the benefits and costs--including the effects on
efficiency, competition, and capital formation--that would result from
the proposed rule. Overall, the Commission and the Corporation
preliminarily believe that the primary benefit of the proposed rule is
to codify additional details regarding the process for orderly
liquidation of failed broker-dealers which will provide additional
structure and enable consistent application of the process.
Importantly, the proposed rule does not affect the set of options
available to the Commission and the Corporation, nor does it affect the
range of possible outcomes. The detailed analysis of costs and benefits
regarding the proposed rule is discussed below.
The Dodd-Frank Act specifically provides that the FDIC may be
appointed receiver for a systemically important broker-dealer for
purposes of the orderly liquidation of the company using the powers and
authorities granted to the FDIC under Title II of the Act.\152\ Section
205 of the Dodd-Frank Act sets forth a process for the orderly
liquidation of covered broker-dealers that is an alternative to the
process under SIPA, but that process incorporates many of the customer
protection features of SIPA into a Title II orderly liquidation.
Congress recognized that broker-dealers are different from other kinds
of systemically important financial companies in several ways, not the
least of which is how customers of a broker-dealer are treated in an
insolvency proceeding relating to the broker-dealer.\153\ Section 205
of the Dodd-Frank Act is intended to address situations where the
failure of a large broker-dealer could have broader impacts on the
stability of the United States financial system. The financial crisis
of 2008 and the ensuing economic recession resulted in the failure of
many financial entities. Liquidity problems that initially began at a
small set of firms quickly spread as uncertainty about which
institutions were solvent increased, triggering broader market
disruptions, including a general loss of liquidity, distressed asset
sales, and system-wide redemption runs by some participants.\154\ The
proposed rule seeks to implement the orderly liquidation provisions of
the Dodd-Frank Act in a manner that is designed to help reduce both the
likelihood and the severity of financial market disruptions that could
result from the failure of a covered broker-dealer.
---------------------------------------------------------------------------

\152\ See 12 U.S.C. 5382, 12 U.S.C. 5383, and 12 U.S.C. 5384.
\153\ See 12 U.S.C. 5385 (orderly liquidation of covered brokers
and dealers).
\154\ See Brunnermeir, M. (2009), Deciphering the Liquidity and
Credit Crunch 2007-2008, Journal of Economic Perspectives 23, 77-
100.
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In the case of a failing broker-dealer, the broker-dealer customer
protection regime is primarily composed of SIPA and the Exchange Act,
as administered by SIPC and the Commission. Among other Commission
financial responsibility rules, Rule 15c3-3 specifically protects
customer funds and securities held by a broker-dealer and essentially
forbids broker-dealers from using customer assets to finance any part
of their businesses unrelated to servicing securities customers.\155\
With

[[Page 10809]]

respect to SIPA, and as a general matter, in the event that a broker-
dealer enters into a SIPA liquidation, customers' cash and securities
held by the broker-dealer are returned to customers on a pro-rata
basis.\156\ If the broker-dealer does not have sufficient funds to
satisfy customer net equity claims, SIPC advances may be used to
supplement the distribution, up to a ceiling of $500,000 per customer,
including a maximum of $250,000 for cash claims.\157\ When applicable,
SIPC or a SIPA trustee will return securities that are registered in
the customer's name, or are in the process of being registered,
directly to each customer.\158\ An integral component of the broker-
dealer customer protection regime is that, under SIPA, customers have
preferred status relative to general creditors with respect to customer
property and customer name securities.\159\ SIPC or a SIPA trustee may
sell or transfer customer accounts to another SIPC member in order for
the customers to regain access to their accounts in an expedited
fashion.\160\
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\155\ See Net Capital Requirements for Brokers and Dealers,
Exchange Act Release No. 21651 (Jan. 11, 1985), 50 FR 2690, 2690
(Jan. 18, 1985). See also Broker-Dealers; Maintenance of Certain
Basic Reserves, Exchange Act Release No. 9856 (Nov. 10, 1972), 37 FR
25224, 25224 (Nov. 29, 1972).
\156\ See 15 U.S.C. 78fff-2(b).
\157\ See 15 U.S.C. 78fff-3(a).
\158\ See 15 U.S.C. 78fff-2(c).
\159\ See 15 U.S.C. 78fff(a).
\160\ See 15 U.S.C. 78fff-2(f).
---------------------------------------------------------------------------

Title II of the Dodd-Frank Act supplemented the customer protection
regime for broker-dealers. As described above in more detail, in the
event a covered broker-dealer fails,\161\ Title II provides the FDIC
with a broader set of tools to help ensure orderly liquidation,
including the ability to transfer all assets and liabilities held by a
broker-dealer-- not just customer assets--to another broker-dealer, as
well as the ability to borrow from the U.S. Treasury.\162\ Upon the
commencement of an orderly liquidation under Title II, the FDIC is
appointed the receiver of the broker-dealer and SIPC is appointed as
the trustee for the liquidation process. The FDIC is given the
authority to form and fund a bridge broker-dealer,\163\ which would
facilitate a quick transfer of customer accounts to a solvent broker-
dealer and therefore would accelerate reinstated access to customer
accounts.\164\ By granting the FDIC the ability to transfer any asset
or liability to the bridge broker-dealer as it deems necessary, the
orderly liquidation proceeding allows the Corporation to extend relief
to certain creditors to reduce the destabilizing effects these
creditors may cause if they run on a large broker-dealer.\165\ To
further reduce the run risk the failed broker-dealer may be facing,
Title II imposes an automatic one-business day stay on certain
activities by the counterparties to QFCs, so as to provide the FDIC an
opportunity to inform counterparties that the covered broker-dealer's
liabilities were transferred to and assumed by the bridge broker-
dealer.\166\
---------------------------------------------------------------------------

\161\ To facilitate their customer business and to finance their
proprietary trading activities, broker-dealers often enter into
short-term borrowing arrangements, including repurchase and
securities lending agreements. Such financing arrangements can have
maturities as short as a day, requiring broker-dealers to
continuously refinance their positions. Broker-dealers are therefore
subject to liquidity risk in the event that short-term lenders and
counterparties refuse to finance their positions or seek less
favorable terms for the broker-dealer, such as higher haircuts on
collateral. Doubts about a broker-dealer's viability can lead a
broker-dealer's customers to move their accounts from the broker-
dealer, placing additional strains upon the broker-dealer's
liquidity position. Such doubts can, in turn, lead to a general
``run'' against the broker-dealer, both in its secured financing
activities and withdrawals of customer accounts. The ability of the
Corporation under Title II to provide financing to the broker-dealer
and to allow the broker-dealer to continue its operations may help
to address the liquidity stress at the broker-dealer and reduce the
potential risk to other market participants.
\162\ Under a SIPA liquidation, the Commission is authorized to
make loans to SIPC should SIPC lack sufficient funds. In addition,
to fund these loans, the Commission is authorized to borrow up to
$2.5 billion from the U.S. Treasury. See 15 U.S.C. 78ddd(g) and (h).
\163\ See Sec. Sec. 380.63 and 302.103, as proposed (regarding
the FDIC's power to ``organize one or more bridge brokers or dealers
with respect to a covered broker or dealer'').
\164\ See Section II.D.2 on the FDIC's power to transfer
accounts to bridge broker-dealer.
\165\ See Section II.E on the claims of customers and other
creditors of a covered broker-dealer.
\166\ See Section II.F on the additional proposed sections that
relate to qualified financial contracts.
---------------------------------------------------------------------------

The proposed rule is designed to implement the provisions of
section 205, so that an orderly liquidation can be carried out for
certain broker-dealers with efficiency and the intended benefits of
orderly liquidation, as established by the Dodd-Frank Act, on the
overall economy can be realized. Specifically, the proposed rule
implements the framework for the liquidation of covered broker-dealers.
The framework includes definitions for the key terms such as customer,
customer property, customer name securities, net equity, and bridge
broker-dealer. It sets forth three major processes regarding the
orderly liquidation--the process of initiating the orderly liquidation
(including the appointment of receiver and trustee and the notice and
application for protective decree), the process of account transfers to
the bridge broker-dealer, and the claims process for customers and
other creditors. While establishing orderly liquidation generally,
section 205 does not specifically provide the details of such
processes.
The proposed rule provides several clarifications to the provisions
in the statute. For example, under Title II, the FDIC has authority to
transfer any assets without obtaining any approval, assignment, or
consents.\167\ The proposed rule further provides that the transfer to
a bridge broker-dealer of any account, property or asset is not
determinative of customer status, nor that the property so transferred
qualifies as customer property or customer name securities.\168\ The
proposed rule also provides clarifications on terms such as the venue
for filing the application for a protective decree and the filing
date.\169\
---------------------------------------------------------------------------

\167\ See Sec. Sec. 380.63 and 302.103, as proposed.
\168\ These determinations would be made by SIPC in accordance
with SIPA. See Sec. Sec. 380.64(a)(1) and 302.104, as proposed
\169\ See Sec. Sec. 380.62 and 302.102, as proposed.
---------------------------------------------------------------------------

In addition, the proposed rule clarifies the process for
transferring assets to the bridge broker-dealer, which should help
expedite customer access to their respective accounts. For example, the
proposed rule provides that allocations to customer accounts at the
bridge broker-dealer may initially be derived from estimates based upon
the books and records of the covered broker-dealer or other information
deemed relevant by the Corporation in consultation with SIPC.\170\ This
means that customers may potentially access their accounts more
expeditiously, before the time-consuming record reconciliation process
concludes.
---------------------------------------------------------------------------

\170\ See Sec. Sec. 380.63(d) and 302.103(d), as proposed.
---------------------------------------------------------------------------

Therefore, overall, the Commission and the Corporation
preliminarily believe that the primary benefit of the proposed rule is
to codify additional details regarding the process for the orderly
liquidation of covered broker-dealers, which will provide additional
structure and enable consistent application of the process.
Importantly, the proposed rule does not affect the set of options
available to the Commission and the Corporation upon failure of a
covered broker-dealer, nor does it affect the range of possible
outcomes. In the absence of the proposed rule, the Commission, the
Board and the Secretary \171\ could still determine that an orderly
liquidation under Title II is appropriate, and the FDIC would still
have broad authority to establish a bridge broker-dealer and transfer
all assets and liabilities held by the failed entity. However, in the
absence of the proposed rule, uncertainty could arise regarding the
definitions (e.g., the applicable filing date or the nature of the
application for a protective decree) and the claims process, which
could

[[Page 10810]]

cause delays in the process and undermine the goals of the statute. By
establishing a uniform process for the orderly resolution of a broker-
dealer, the proposed rule should improve the orderly liquidation
process while implementing the statutory requirements, so that orderly
liquidations can be carried out with efficiency and predictability.
Such efficiency and predictability should generally ease implementation
burdens and conserve resources that otherwise would have to be expended
resolving delays in the claims process or in connection with any
potential litigation that could arise from delays. The discussion below
elaborates on the likely costs and benefits of the proposed rule and
its potential impact on efficiency, competition and capital formation,
as well as potential alternatives.
---------------------------------------------------------------------------

\171\ See 12 U.S.C. 5383(a)(1)(B).
---------------------------------------------------------------------------

B. Economic Baseline

To assess the economic impact of the proposed rule, the Commission
and the Corporation are using section 205 of the Dodd-Frank Act as the
economic baseline. Section 205 sets forth provisions specific to the
orderly liquidation of certain large broker-dealers and paragraph (h)
directs the Commission and the Corporation, in consultation with SIPC,
jointly to issue rules to fully implement the section.\172\ Although no
implementing rules are in place, section 205 of the Dodd-Frank Act was
self-effectuating, meaning that the statutory requirements are in
effect. Therefore, the appropriate baseline is the orderly liquidation
authority in place pursuant to section 205, without any implementation
rules issued by the Agencies. As outlined in Title II of the Dodd-Frank
Act, irrespective of how the broker-dealer was placed into a Title II
resolution, section 205 regarding the liquidation of broker-dealers and
the proposed rule (if adopted) would always apply to the covered
broker-dealer even if section 210 is invoked.
---------------------------------------------------------------------------

\172\ 12 U.S.C. 5385(h).
---------------------------------------------------------------------------

1. SIPC's Role
Section 205 provides that upon the appointment of the FDIC as
receiver for a covered broker-dealer, the FDIC shall appoint SIPC as
trustee for the liquidation of the covered broker-dealer under SIPA
without need for any approval.\173\ Upon its appointment as trustee,
SIPC shall promptly file with a federal district court an application
for protective decree, the terms of which will jointly be determined by
SIPC and the Corporation, in consultation with the Commission.\174\
Section 205 also provides that SIPC shall have all of the powers and
duties provided by SIPA, except with respect to assets and liabilities
transferred to the bridge broker-dealer.\175\ The determination of
claims and the liquidation of assets retained in the receivership of
the covered broker-dealer and not transferred to the bridge financial
company shall be administered under SIPA.\176\
---------------------------------------------------------------------------

\173\ 12 U.S.C. 5385(a).
\174\ See 12 U.S.C. 5385(a)(2).
\175\ 12 U.S.C. 5385. See also Sec. Sec. 380.64(a) and
302.104(a), as proposed (regarding SIPC's role as trustee).
\176\ Id.
---------------------------------------------------------------------------

2. The Corporation's Power to Establish Bridge Broker-Dealers
Section 205 of the Dodd-Frank Act does not contain specific
provisions regarding bridge broker-dealers. However, section 210 of the
Dodd-Frank Act provides that, in connection with an orderly
liquidation, the FDIC has the power to form one or more bridge
financial companies, which includes the power to form bridge broker-
dealers with respect to a covered broker-dealer.\177\ Under Title II,
the FDIC has the authority to transfer any asset or liability held by
the covered financial company without obtaining any approval,
assignment, or consent with respect to such transfer.\178\ It is
further provided that any customer of a covered broker-dealer whose
account is transferred to a bridge financial company shall have all
rights and privileges under section 205(f) of the Dodd-Frank Act and
SIPA that such customer would have had if the account was not
transferred.\179\
---------------------------------------------------------------------------

\177\ See 12 U.S.C. 5390(h)(1)(A). See also 12 U.S.C.
5390(h)(2)(H).
\178\ 12 U.S.C. 5390(a)(1)(G).
\179\ See 12 U.S.C. 5390(h)(2)(H)(iii).
---------------------------------------------------------------------------

3. Satisfaction of Customer Claims
Section 205(f) of the Dodd-Frank Act requires that all obligations
of a covered broker-dealer or bridge broker-dealer to a customer
relating to, or net equity claims based on, customer property or
customer name securities must be promptly discharged in a manner and in
an amount at least as beneficial to the customer as would have been the
case had the broker-dealer been liquidated in a SIPA proceeding.

C. Benefits, Costs and Effects on Efficiency, Competition, and Capital
Formation

1. Anticipated Benefits
a. Overall Benefits
The key benefit of the proposed rule is that it creates a more
structured framework to implement section 205 of the Dodd-Frank Act, so
that the orderly liquidation of a covered broker-dealer can be carried
out with efficiency and predictability if the need arises. As discussed
in the economic baseline, section 205 provides parameters for the
orderly liquidation of covered broker-dealers, while the proposed rule
implements these statutory parameters. The proposed rule first provides
definitions for certain key terms including customer, customer
property, customer name securities, net equity, and bridge broker-
dealer, among others.\180\ It then sets forth three major processes
regarding the orderly liquidation: the process of initiating the
orderly liquidation,\181\ the process of account transfers to the
bridge broker-dealer,\182\ and the claims process for customers and
other creditors.\183\
---------------------------------------------------------------------------

\180\ See Sec. Sec. 380.60 and 302.100, as proposed.
\181\ See Sec. Sec. 380.61, 380.62, 302.101 and 302.102, as
proposed.
\182\ See Sec. Sec. 380.63 and 302.103, as proposed.
\183\ See Sec. Sec. 380.64 and 302.104, as proposed.
---------------------------------------------------------------------------

First, besides incorporating the statutory requirement of
appointing SIPC as the trustee for covered broker-dealers, the proposed
rule provides a more detailed process for notice and application for
protective decree. It provides clarification for the venue in which the
notice and application for a decree is to be filed.\184\ It clarifies
the definition of the filing date if the notice and application is
filed on a date other than the appointment date.\185\ And finally, it
also includes a non-exclusive list of notices drawn from other parts of
Title II to inform the relevant parties of the initiation of the
orderly liquidation process and what they should expect.\186\
---------------------------------------------------------------------------

\184\ See Sec. Sec. 380.62(a) and 302.102, as proposed.
\185\ Id.
\186\ See Sec. Sec. 380.62(b) and 302.102(b), as proposed.
---------------------------------------------------------------------------

Second, the proposed rule sets forth the process to establish one
or more bridge broker-dealers and to transfer accounts, property, and
other assets held by a covered broker-dealer to such bridge broker-
dealers, pursuant to Title II of Dodd-Frank Act.\187\ Section 205 of
the Act does not specifically provide for such a process. The proposed
rule specifies that the Corporation may transfer any account, property,
or asset held by a covered broker-dealer

[[Page 10811]]

(including customer and non-customer accounts, property and assets) to
a bridge broker-dealer as the Corporation deems necessary, based on the
FDIC's authority under Title II to transfer any assets without
obtaining any approval, assignment, or consents.\188\ The transfer to a
bridge broker-dealer of any account, property or asset is not
determinative of customer status.\189\ The determinations of customer
status are to be made by SIPC as trustee in accordance with SIPA.\190\
As discussed above, given the preferred status of customers, litigation
has been brought on customer status under SIPA (e.g., repo
counterparties' claims of customer status under SIPA).\191\ Since the
Corporation may transfer both customer and non-customer accounts,
property and assets held by a covered broker-dealer to a bridge broker-
dealer according to the statute, in the absence of the proposed rule,
some non-customer creditors may mistakenly interpret under the baseline
scenario that such a transfer confers customer status (especially since
in a SIPA proceeding only customer assets are transferred). To the
extent that such mistaken beliefs may arise from the statutory
provisions, litigation over customer status could arise. The
clarification in the proposed rule stresses that customer status is
determined by SIPC separately from the decision to transfer an asset to
a bridge broker-dealer, and could thus help prevent confusion
concerning whether other creditors whose assets have also been
transferred should be treated as customers. This clarification may
mitigate a potential increase in litigation costs, although the
economic benefit of such mitigation is likely to be de minimis.
---------------------------------------------------------------------------

\187\ See Sec. Sec. 380.63 and 302.103, as proposed.
\188\ See Sec. Sec. 380.63(e) and 302.103(e), as proposed.
\189\ See Sec. Sec. 380.64(a) and 302.104(a), as proposed.
\190\ See Sec. Sec. 380.64(a) and 302.104(a) as proposed.
\191\ See, e.g., In re Lehman Brothers Inc., 492 B.R. 379
(Bankr. S.D.N.Y. 2013), aff'd, 506 B.R. 346.
---------------------------------------------------------------------------

Regarding the account transfers to bridge broker-dealers, in
addition to the provisions on the specifics of a transfer (e.g., the
calculation of customer net equity, the assumption of the net equity
claim by the bridge broker-dealer and the allocation of customer
property), the proposed rule further provides that allocations to
customer accounts at the bridge broker-dealer may initially be derived
from estimates based upon the books and records of the covered broker-
dealer or other information deemed relevant by the Corporation in
consultation with SIPC.\192\ Given that it could be time-consuming to
reconcile the broker-dealer's records with the records of other
parties, this provision may speed up the allocation of customer
property to the customer accounts at the bridge broker-dealer, thus
providing customers quicker access to their accounts.
---------------------------------------------------------------------------

\192\ See Sec. Sec. 380.63(d) and 302.103(d), as proposed.
---------------------------------------------------------------------------

Third, the proposed rule also addresses the claims process for
customers and other creditors.\193\ The proposed rule implements the
statute's requirement that the trustee's allocation shall be in an
amount and manner, including form and timing, at least as beneficial as
such customer would have received under a SIPA proceeding, as required
by section 205(f).\194\ In addition, it further addresses certain
procedural aspects of the claims determination process, such as the
publication and mailing of notices to creditors, the notice of the
appointment of the FDIC and SIPC, the claims bar date, and expedited
relief.
---------------------------------------------------------------------------

\193\ See Sec. Sec. 380.64 and 302.104, as proposed.
\194\ See Sec. Sec. 380.64(a)(4) and 302.104(a)(4), as
proposed.
---------------------------------------------------------------------------

In summary, the proposed rule would provide interested parties with
details on the implementation of the orderly liquidation process. By
providing for a uniform process, the proposed rule could improve the
orderly liquidation process, so that the orderly liquidation can be
carried out with efficiency and predictability. Under the baseline
scenario, in absence of the proposed rule, uncertainty may arise
because various parties may interpret the statutory requirements
differently. For example, under the baseline, the repo counterparties
of the broker-dealer may not understand that the transfer of the rights
and obligations under their contracts to the bridge broker-dealer is
not determinative of customer status, because such a transfer to
another broker-dealer is only available for customers under a SIPA
proceeding. That is, repo counterparties of the broker-dealer may
mistakenly believe that the transfer of rights and obligations implies
customer status. Accordingly, the proposed rule provides that the
transfer of accounts to a bridge broker-dealer is not determinative of
customer status, and that such status is determined by SIPC in
accordance with SIPA. Uncertainty regarding such matters could result
in litigation and delays in the claims process if orderly liquidation
were to be commenced with respect to a covered broker-dealer;
therefore, the structure provided by the proposed rule could conserve
resources that otherwise would have to be expended in settling such
litigation and resolving delays that may arise, and create a more
efficient process for enabling orderly liquidation. Moreover, under the
baseline scenario, uncertainties about process and how customer and
creditor claims would be handled could continue to encourage these
claimants to reduce exposure if doubts about a broker-dealer's
viability arise--for customers, by withdrawing free credit balances;
for creditors, by reducing repo and derivatives exposure. Such
uncertainties, if they were to persist, could undermine the broader
benefits that orderly liquidation could provide to financial stability.
In this sense, the processes set forth by the proposed rule could help
realize the economic benefits of section 205.
b. Benefits to Affected Parties
The Commission and the Corporation believe that the proposed rule
provides benefits comparable to those under the baseline scenario to
relevant parties such as customers, creditors, and counterparties. To
the extent that it provides additional guidance on procedural matters,
the proposed rule may reduce potential uncertainty, thereby providing
for an efficient and predictable orderly liquidation process.
Therefore, the Commission and the Corporation preliminarily believe the
proposed rule will improve the orderly liquidation process and provide
benefits beyond the statute, although such benefits are likely to be
incremental.
The Commission and the Corporation preliminarily believe that the
proposed rule will be beneficial to customers.\195\ The proposed rule
states that the bridge broker-dealer will undertake the obligations of
a covered broker-dealer with respect to each person holding an account
transferred to the bridge broker-dealer, providing customers with
transferred accounts assurance that they will receive the same legal
protection and status as a customer of a broker-dealer that is subject
to a liquidation outside of Title II.\196\ Further, under the proposed
rule, the transfer of non-customer assets to a bridge broker-dealer
would not imply customer status for these assets, which could thereby
reduce any incentive to not move assets based upon fears of prejudging
customer status. Finally, the proposed rule would provide that
allocations to customer accounts at the bridge broker-dealer may
initially be derived from estimates based on the books and records of
the covered broker-dealer.\197\ This provision could

[[Page 10812]]

help facilitate expedited customer access to their respective accounts,
as customers would not have to wait for a final reconciliation of the
broker-dealer's records with other parties' records.\198\
---------------------------------------------------------------------------

\195\ See Section II.D.1 discussing the preferred status of
customer claims. See also Sec. Sec. 380.65(a)(1) and 302.105(a)(1),
as proposed (explaining that ``SIPC . . . shall determine customer
status . . .'').
\196\ See Sec. Sec. 380.63(d) and 302.103(d), as proposed.
\197\ See Sec. Sec. 380.63(d) and 302.103(d), as proposed.
\198\ See Sec. Sec. 380.63(e) and 302.103(e), as proposed. See
also 15 U.S.C. 78eee(b)(2)(C)(i) and (ii).
---------------------------------------------------------------------------

The Commission preliminarily believes the proposed rule will yield
benefits to both secured and unsecured creditors, as it clarifies the
manner in which creditor claims could be transferred to a bridge
broker-dealer. Creditors thus could potentially receive benefits from
financing provided by the Corporation to the bridge broker-dealer.
2. Anticipated Costs
While the proposed rule is designed to ensure that an orderly
liquidation under Title II would be at least as beneficial to customers
as would be the case in a SIPA liquidation, orderly liquidation does
entail different treatment of QFC counterparties. Under SIPA, certain
QFC counterparties may exercise specified contractual rights regardless
of an automatic stay.\199\ In contrast, Title II imposes an automatic
one-day stay on certain activities by QFC counterparties,\200\ which
may limit the ability of these counterparties to terminate contracts or
exercise any rights against collateral. As proposed, the stay would
remain in effect if the QFC contracts are transferred to a bridge
broker-dealer. While these provisions may impose costs, they are a
consequence of the statute and are already in effect.
---------------------------------------------------------------------------

\199\ See 15 U.S.C. 78eee(b)(2)(C)(i) through (ii). See also
Letter from Michael E. Don, Deputy General Counsel of SIPC to Robert
A. Portnoy, Deputy Executive Director and General Counsel of the
Public Securities Association, dated February 4, 1986 (repurchase
agreements); Letter from Michael E. Don to J. Eugene Marans, Cleary,
Gottlieb, Steen & Hamilton, dated August 29, 1988 (securities
lending transactions); Letter from Michael E. Don to James D.
McLaughlin, Director of the American Bankers Association, dated
October 30, 1990 (securities lending transactions secured by cash
collateral or supported by letters of credit); Letter from Michael
E. Don to John G. Macfarlane, III, Chairman, Repo Committee, Public
Securities Association, dated February 19, 1991 (securities lending
transactions secured by cash collateral or supported by letters of
credit); Letter from Michael E. Don, President of SIPC to Seth
Grosshandler, Cleary, Gottlieb, Steen & Hamilton, dated February 14,
1996 (repurchase agreements falling outside the Code definition of
``repurchase agreement''); and Letter from Michael E. Don to Omer
Oztan, Vice President and Assistant General Counsel of the Bond
Market Association, dated June 25, 2002 (repurchase agreements).
\200\ See Sec. Sec. 380.67 and 302.107, as proposed.
---------------------------------------------------------------------------

In addition, as discussed above, the proposed rule could benefit
customers by allowing the allocations to customer accounts at the
bridge broker-dealer to be derived from estimates based on the books
and records of the covered broker-dealer. Such a process may accelerate
customers' access to their accounts, as they would not have to wait for
a final account reconciliation to access their accounts. As provided
for in the proposed rule, the calculation of allocations of customer
property to customer accounts would be refined as additional
information becomes available. The Commission and the Corporation
preliminarily believe that initial allocations will be made
conservatively, which with the backstop of the availability of SIPC
advances to customers in accordance with the requirements of SIPA,
should minimize the possibility of an over-allocation to any customer.
To the extent that initial estimates are excessive, it is possible that
customer funds may need to be reallocated after customers initially
gain access to their accounts, which could result in costs for
customers. Essentially, the proposed rule trades off expedited access
to customer funds with the possibility of subsequent reallocation. We
currently lack data concerning the impact or costs that might be
associated with this possibility. The costs associated with all of
these factors may vary significantly depending on broker-dealer systems
and the specific events. For these reasons, we are unable to quantify
the costs associated with these factors at this time. However, as noted
above, the Commission and the Corporation preliminarily believe initial
allocations will be made conservatively, which would minimize the
possibility of an over-allocation to any customer and mitigate
potential costs and uncertainty associated with allocation refinements.
3. Effects on Efficiency, Competition, and Capital Formation
The Commission and the Corporation have preliminarily assessed the
effects arising from the proposed rule on efficiency, competition, and
capital formation. As discussed above, the Agencies preliminarily
believe the primary economic benefit of the proposed rule will be that
it provides details to implement section 205 of the Dodd-Frank Act, so
that the orderly liquidation of a covered broker-dealer can be carried
out with greater efficiency and predictability if the need arises. This
structure could reduce uncertainty about treatment of customer and
creditor claims in an orderly liquidation, conserving resources and
creating a more efficient process relative to orderly liquidation under
the baseline. In addition, uncertainty about treatment of claims could
encourage customers and creditors to reduce exposure to a broker-dealer
facing financial distress, exacerbating liquidity problems. By reducing
uncertainty, the proposed rule may reduce incentives for claimants to
rush to reduce exposures. In such a scenario, broker-dealers may find
it easier to recover from moderate financial distress and to sustain a
sufficient capital position to provide financial intermediation
services. Furthermore, for sufficiently large broker-dealers with many
creditor and counterparty relationships throughout the financial
system, positive perceptions about the ability of those broker-dealers
to recover from moderate financial distress may stave off aggregate
financial sector runs, and thus preserve financial sector capital and
the availability of financial intermediation services.
Beyond these identified potential effects, the Commission and the
Corporation preliminarily believe that the additional effects of the
proposed rule on efficiency, competition, and capital formation will be
linked to the existence of an orderly liquidation process itself, which
is part of the baseline, and is an option available to regulatory
authorities today. Our analysis of the effects of an orderly
liquidation process on efficiency, competition, and capital formation
focuses on those effects that derive from the process and structure
created by the proposed rule, but not those that are due to the
underlying statute, which is part of the economic baseline. By
establishing a structured framework, the proposed rule sets clearer
expectations for relevant parties, and therefore could help reduce
potential uncertainty and contribute to market efficiency and liquidity
as described above. Relative to the baseline scenario, where orderly
liquidation exists as an option for regulatory authorities but without
the framework provided in the proposed rule, having a structured
process in place as a response to a potential crisis could also allow
broker-dealers to more readily attract funding, thus facilitating
capital formation.

D. Alternatives Considered

As described above, Title II of the Dodd-Frank Act establishes a
process by which a covered broker-dealer would be placed into orderly
liquidation. Furthermore, orderly liquidation is available as an option
to regulators today, and the proposed rule does not affect the set of
options available to the Commission and the Corporation, nor does it
affect the range of possible outcomes. As an alternative to this
proposed rule, the Commission and the Corporation could rely on
statutory

[[Page 10813]]

provisions alone to achieve similar outcomes. However, the Commission
and the Corporation preliminarily believe that relying on the statute
alone, without a rule implementing section 205 of the Dodd-Frank Act,
would result in orderly liquidations, if any, that are less efficient
and less predictable, and that would fail to achieve the benefits of
the proposed rule described above. In particular, the absence of the
provisions of the proposed rule outlining the process for notice and
application for a protective decree, the process for establishing a
bridge broker-dealer, and the process governing the transfer of
accounts, property, and other assets held by the covered broker-dealer
to the bridge broker-dealer, could lead to inconsistent application of
the statutory provisions. Such inconsistency could cause delays in the
liquidation process and increase the likelihood of litigation over
issues such as customer status, increasing costs for customers and
creditors without corresponding benefits.

E. Request for Comment

In addition to the general requests for comment, the Commission and
the Corporation request comment with respect to the following specific
questions:
1. As an alternative to the proposed rule, should the Commission
and the Corporation instead rely on the statute alone to implement
orderly liquidations of covered broker-dealers? Why?
2. Are there additional alternative processes to implement section
205 of the Dodd-Frank Act that the Commission and the Corporation
should consider? If so, what are they and what would be the associated
costs or benefits of these alternative approaches?

VI. Regulatory Analysis and Procedures

A. Regulatory Flexibility Act Analysis

The Regulatory Flexibility Act (``RFA'') \201\ requires an agency
publishing a notice of proposed rulemaking to prepare and make
available for public comment a regulatory flexibility analysis that
describes the impact of the proposed rule on small entities.\202\ The
RFA provides that an agency is not required to prepare and publish a
regulatory flexibility analysis if the agency certifies that the
proposed rule will not have a significant economic impact on a
substantial number of small entities.\203\
---------------------------------------------------------------------------

\201\ 5 U.S.C. 601 et seq.
\202\ 5 U.S.C. 603(a).
\203\ 5 U.S.C. 605(b).
---------------------------------------------------------------------------

Pursuant to section 605(b) of the RFA, the Agencies certify that
the proposed rule, if adopted, will not have a significant economic
impact on a substantial number of small entities. Under Small Business
Administration size standards defining small entities, broker-dealers
are generally considered small entities if their annual receipts do not
exceed $38.5 million.\204\ If adopted, the proposed rule will clarify
rules and procedures for the orderly liquidation of a covered broker-
dealer under Title II of the Dodd-Frank Act. A covered broker-dealer is
a broker-dealer that is subject to a systemic risk determination by the
Secretary pursuant to section 203 of the Dodd-Frank Act, 12 U.S.C.
5383, and thereafter is to be liquidated under Title II of the Dodd-
Frank Act. The Agencies do not believe that a broker-dealer that would
be considered a small entity for purposes of the RFA would ever be the
subject of a systemic risk determination by the Secretary. Therefore,
the Agencies are not aware of any small entities that would be affected
by the proposed rule. As such, the proposed rule, if adopted, would not
affect, and would impose no burdens on, small entities.
---------------------------------------------------------------------------

\204\ 13 CFR 121.201.
---------------------------------------------------------------------------

B. The Treasury and General Government Appropriations Act, 1999--
Assessment of Federal Regulations and Policies on Families

The FDIC has determined that the proposed rule will not affect
family well-being within the meaning of section 654 of the Treasury and
General Government Appropriations Act, enacted as part of the Omnibus
Consolidated and Emergency Supplemental Appropriations Act of
1999.\205\
---------------------------------------------------------------------------

\205\ Public Law 105-277, 112 Stat. 2681.
---------------------------------------------------------------------------

C. Plain Language

Section 722 of the Gramm-Leach-Bliley Act \206\ requires federal
banking agencies to use plain language in all proposed and final rules
published after January 1, 2000. The FDIC has sought to present the
proposed rule in a simple and straightforward manner but nevertheless
invites comment on whether the proposal is clearly stated and
effectively organized, and how the Agencies might make the proposed
text easier to understand.
---------------------------------------------------------------------------

\206\ Public Law 106-102, 113 Stat. 1338, 1471.
---------------------------------------------------------------------------

VII. Consideration of Impact on the Economy

For purposes of the Small Business Regulatory Enforcement Fairness
Act of 1996 (``SBREFA''), the Commission and the Corporation request
comment on the potential effect of the proposed rule on the United
States economy on an annual basis. The Commission and the Corporation
also request comment on any potential increases in costs or prices for
consumers or individual industries, and any potential effect on
competition, investment, or innovation based on the proposed rule.
Commenters are requested to provide empirical data and other factual
support for their views to the extent possible.

VIII. Statutory Authority

The proposed rule is being promulgated pursuant to section 205(h)
of the Dodd-Frank Act. Section 205(h) of the Act requires the
Corporation and the Commission, in consultation with SIPC, jointly to
issue rules to implement section 205 of the Act concerning the orderly
liquidation of covered broker-dealers.

List of Subjects

12 CFR Part 380

Bankruptcy, Brokers, Claims, Customers, Dealers, Financial
companies, Orderly liquidation.

17 CFR Part 302

Brokers, Claims, Customers, Dealers, Financial companies, Orderly
liquidation.

Federal Deposit Insurance Corporation

12 CFR Part 380

Authority and Issuance

For the reasons stated in the preamble, the Federal Deposit
Insurance Corporation proposes to amend 12 CFR part 380 as follows:

PART 380--ORDERLY LIQUIDATION AUTHORITY

0
1. The authority citation for part 380 is revised to read as follows:

Authority: 12 U.S.C. 5385(h); 12 U.S.C. 5389; 12 U.S.C.
5390(s)(3); 12 U.S.C. 5390(b)(1)(C); 12 U.S.C. 5390(a)(7)(D); 12
U.S.C. 5381(b), 12 U.S.C. 5390(r).

0
2. Add subpart D to read as follows:

Subpart D--Orderly Liquidation of Covered Brokers or Dealers

Sec.
380.60 Definitions.
380.61 Appointment of receiver and trustee for covered broker or
dealer.
380.62 Notice and application for protective decree for covered
broker or dealer.
380.63 Bridge broker or dealer.
380.64 Claims of customers and other creditors of a covered broker
or dealer.
380.65 Priorities for unsecured claims against a covered broker or
dealer.
380.66 Administrative expenses of SIPC.
380.67 Qualified financial contracts.

[[Page 10814]]

Sec. 380.60 Definitions.

For purposes of this subpart D, the following terms shall have the
following meanings:
(a) Appointment date. The term appointment date means the date of
the appointment of the Corporation as receiver for a covered financial
company that is a covered broker or dealer. This date shall constitute
the filing date as that term is used in SIPA.
(b) Bridge broker or dealer. The term bridge broker or dealer means
a new financial company organized by the Corporation in accordance with
12 U.S.C. 5390(h) for the purpose of resolving a covered broker or
dealer.
(c) Commission. The term Commission means the Securities and
Exchange Commission.
(d) Covered broker or dealer. The term covered broker or dealer
means a covered financial company that is a qualified broker or dealer.
(e) Customer. The term customer of a covered broker or dealer shall
have the same meaning as in 15 U.S.C. 78lll(2) provided that the
references therein to debtor shall mean the covered broker or dealer.
(f) Customer name securities. The term customer name securities
shall have the same meaning as in 15 U.S.C. 78lll(3) provided that the
references therein to debtor shall mean the covered broker or dealer
and the references therein to filing date shall mean the appointment
date.
(g) Customer property. The term customer property shall have the
same meaning as in 15 U.S.C. 78lll(4) provided that the references
therein to debtor shall mean the covered broker or dealer.
(h) Net equity. The term net equity shall have the same meaning as
in 15 U.S.C. 78lll(11) provided that the references therein to debtor
shall mean the covered broker or dealer and the references therein to
filing date shall mean the appointment date.
(i) Qualified broker or dealer. The term qualified broker or dealer
means a broker or dealer that:
(1) Is registered with the Commission under section 15(b) of the
Securities Exchange Act of 1934 (15 U.S.C. 78o(b)); and
(2) Is a member of SIPC.
(j) SIPA. The term SIPA means the Securities Investor Protection
Act of 1970, 15 U.S.C. 78aaa-lll.
(k) SIPC. The term SIPC means the Securities Investor Protection
Corporation.

Sec. 380.61 Appointment of receiver and trustee for covered broker or
dealer.

Upon the appointment of the Corporation as receiver for a covered
broker or dealer, the Corporation shall appoint SIPC to act as trustee
for the covered broker or dealer.

Sec. 380.62 Notice and application for protective decree for covered
broker or dealer.

(a) SIPC and the Corporation, upon consultation with the
Commission, shall jointly determine the terms of a notice and
application for a protective decree that will be filed promptly with
the Federal district court for the district within which the principal
place of business of the covered broker or dealer is located; provided
that if a case or proceeding under SIPA with respect to such covered
broker or dealer is then pending, then such notice and application for
a protective decree will be filed promptly with the Federal district
court in which such case or proceeding under SIPA is pending. If such
notice and application for a protective decree is filed on a date other
than the appointment date, such filing shall be deemed to have occurred
on the appointment date for the purposes of this subpart D.
(b) A notice and application for a protective decree may, among
other things, provide for notice--
(1) Of the appointment of the Corporation as receiver and the
appointment of SIPC as trustee for the covered broker or dealer; and
(2) That the provisions of Title II of the Dodd-Frank Act and any
regulations promulgated thereunder may apply, including without
limitation the following:
(i) Any existing case or proceeding with respect to a covered
broker or dealer under the Bankruptcy Code or SIPA shall be dismissed
effective as of the appointment date and no such case or proceeding may
be commenced with respect to a covered broker or dealer at any time
while the Corporation is receiver for such covered broker or dealer;
(ii) The revesting of assets in a covered broker or dealer to the
extent that they have vested in any entity other than the covered
broker or dealer as a result of any case or proceeding commenced with
respect to the covered broker or dealer under the Bankruptcy Code,
SIPA, or any similar provision of State liquidation or insolvency law
applicable to the covered broker or dealer; provided that any such
revesting shall not apply to assets held by the covered broker or
dealer, including customer property, transferred prior to the
appointment date pursuant to an order entered by the bankruptcy court
presiding over the case or proceeding with respect to the covered
broker or dealer;
(iii) The request of the Corporation as receiver for a stay in any
judicial action or proceeding (other than actions dismissed in
accordance with paragraph (b)(2)(i) of this section) in which the
covered broker or dealer is or becomes a party for a period of up to 90
days from the appointment date;
(iv) Except as provided in paragraph (b)(2)(v) of this section with
respect to qualified financial contracts, no person may exercise any
right or power to terminate, accelerate or declare a default under any
contract to which the covered broker or dealer is a party (and no
provision in any such contract providing for such default, termination
or acceleration shall be enforceable), or to obtain possession of or
exercise control over any property of the covered broker or dealer or
affect any contractual rights of the covered broker or dealer without
the consent of the Corporation as receiver of the covered broker or
dealer upon consultation with SIPC during the 90-day period beginning
from the appointment date; and
(v) The exercise of rights and the performance of obligations by
parties to qualified financial contracts with the covered broker or
dealer may be affected, stayed, or delayed pursuant to the provisions
of Title II of the Dodd-Frank Act (including 12 U.S.C. 5390(c)) and the
regulations promulgated thereunder.

Sec. 380.63 Bridge broker or dealer.

(a) The Corporation, as receiver for one or more covered brokers or
dealers or in anticipation of being appointed receiver for one or more
covered broker or dealers, may organize one or more bridge brokers or
dealers with respect to a covered broker or dealer.
(b) If the Corporation establishes one or more bridge brokers or
dealers with respect to a covered broker or dealer, then, subject to
paragraph (d) of this section, the Corporation as receiver for such
covered broker or dealer shall transfer all customer accounts and all
associated customer name securities and customer property to such
bridge brokers or dealers unless the Corporation determines, after
consultation with the Commission and SIPC, that:
(1) The customer accounts, customer name securities, and customer
property are likely to be promptly transferred to one or more qualified
brokers or dealers such that the use of a bridge broker or dealer would
not facilitate such transfer to one or more qualified brokers or
dealers; or

[[Page 10815]]

(2) The transfer of such customer accounts to a bridge broker or
dealer would materially interfere with the ability of the Corporation
to avoid or mitigate serious adverse effects on financial stability or
economic conditions in the United States.
(c) The Corporation, as receiver for such covered broker or dealer,
also may transfer any other assets and liabilities of the covered
broker or dealer (including non-customer accounts and any associated
property and any assets and liabilities associated with any trust or
custody business) to such bridge brokers or dealers as the Corporation
may, in its discretion, determine to be appropriate in accordance with,
and subject to the requirements of, 12 U.S.C. 5390(h), including 12
U.S.C. 5390(h)(1) and 5390(h)(5), and any regulations promulgated
thereunder.
(d) In connection with customer accounts transferred to the bridge
broker or dealer pursuant to paragraph (b) of this section, claims for
net equity shall not be transferred but shall remain with the covered
broker or dealer. Customer property transferred from the covered broker
or dealer, along with advances from SIPC, shall be allocated to
customer accounts at the bridge broker or dealer in accordance with
Sec. 380.64(a)(3). Such allocations initially may be based upon
estimates, and such estimates may be based upon the books and records
of the covered broker or dealer or any other information deemed
relevant in the discretion of the Corporation as receiver, in
consultation with SIPC, as trustee. Such estimates may be adjusted from
time to time as additional information becomes available. With respect
to each account transferred to the bridge broker or dealer pursuant to
paragraph (b) or (c) of this section, the bridge broker or dealer shall
undertake the obligations of a broker or dealer only with respect to
property transferred to and held by the bridge broker or dealer, and
allocated to the account as provided in Sec. 380.64(a)(3), including
any customer property and any advances from SIPC. The bridge broker or
dealer shall have no obligations with respect to any customer property
or other property that is not transferred from the covered broker or
dealer to the bridge broker or dealer. The transfer of customer
property to such an account shall have no effect on calculation of the
amount of the affected account holder's net equity, but the value, as
of the appointment date, of the customer property and advances from
SIPC so transferred shall be deemed to satisfy any such claim, in whole
or in part.
(e) The transfer of assets or liabilities held by a covered broker
or dealer, including customer accounts and all associated customer name
securities and customer property, assets and liabilities held by a
covered broker or dealer for any non-customer creditor, and assets and
liabilities associated with any trust or custody business, to a bridge
broker or dealer, shall be effective without any consent,
authorization, or approval of any person or entity, including but not
limited to, any customer, contract party, governmental authority, or
court.
(f) Any succession to or assumption by a bridge broker or dealer of
rights, powers, authorities, or privileges of a covered broker or
dealer shall be effective without any consent, authorization, or
approval of any person or entity, including but not limited to, any
customer, contract party, governmental authority, or court, and any
such bridge broker or dealer shall upon its organization by the
Corporation immediately and by operation of law--
(1) Be established and deemed registered with the Commission under
the Securities Exchange Act of 1934;
(2) Be deemed to be a member of SIPC; and
(3) Succeed to any and all registrations and memberships of the
covered broker or dealer with or in any self-regulatory organizations.
(g) Except as provided in paragraph (f) of this section, the bridge
broker or dealer shall be subject to applicable Federal securities laws
and all requirements with respect to being a member of a self-
regulatory organization and shall operate in accordance with all such
laws and requirements and in accordance with its articles of
association; provided, however, that the Commission may, in its
discretion, exempt the bridge broker or dealer from any such
requirements if the Commission deems such exemption to be necessary or
appropriate in the public interest or for the protection of investors.
(h) At the end of the term of existence of a bridge broker or
dealer, any proceeds that remain after payment of all administrative
expenses of such bridge broker or dealer and all other claims against
such bridge broker or dealer shall be distributed to the receiver for
the related covered broker or dealer.

Sec. 380.64 Claims of customers and other creditors of a covered
broker or dealer.

(a) Trustee's role. (1) SIPC, as trustee for a covered broker or
dealer, shall determine customer status, claims for net equity, claims
for customer name securities, and whether property of the covered
broker or dealer qualifies as customer property. SIPC, as trustee for a
covered broker or dealer, shall make claims determinations in
accordance with SIPA and with paragraph (a)(3) of this section, but
such determinations, and any claims related thereto, shall be governed
by the procedures set forth in paragraph (b) of this section.
(2) SIPC shall make advances in accordance with, and subject to the
limitations imposed by, 15 U.S.C. 78fff-3. Where appropriate, SIPC
shall make such advances by delivering cash or securities to the
customer accounts established at the bridge broker or dealer.
(3) Customer property held by a covered broker or dealer shall be
allocated as follows:
(i) First, to SIPC in repayment of advances made by SIPC pursuant
to 12 U.S.C. 5385(f) and 15 U.S.C. 78fff-3(c)(1), to the extent such
advances effected the release of securities which then were apportioned
to customer property pursuant to 15 U.S.C. 78fff(d);
(ii) Second, to customers of such covered broker or dealer, or in
the case that customer accounts are transferred to a bridge broker or
dealer, then to such customer accounts at a bridge broker or dealer,
who shall share ratably in such customer property on the basis and to
the extent of their respective net equities;
(iii) Third, to SIPC as subrogee for the claims of customers; and
(iv) Fourth, to SIPC in repayment of advances made by SIPC pursuant
to 15 U.S.C. 78fff-3(c)(2).
(4) The determinations and advances made by SIPC as trustee for a
covered broker or dealer under this subpart D shall be made in a manner
consistent with SIPC's customary practices under SIPA. The allocation
of customer property, advances from SIPC, and delivery of customer name
securities to each customer or to its customer account at a bridge
broker or dealer, in partial or complete satisfaction of such
customer's net equity claims as of the close of business on the
appointment date, shall be in a manner, including form and timing, and
in an amount at least as beneficial to such customer as would have been
the case had the covered broker or dealer been liquidated under SIPA.
Any claims related to determinations made by SIPC as trustee for a
covered broker or dealer shall be governed by the procedures set forth
in paragraph (b) of this section.
(b) Receiver's role. Any claim shall be determined in accordance
with the procedures set forth in 12 U.S.C. 5390(a)(2) through (5) and
the

[[Page 10816]]

regulations promulgated by the Corporation thereunder, provided
however, that--
(1) Notice requirements. The notice of the appointment of the
Corporation as receiver for a covered broker or dealer shall also
include notice of the appointment of SIPC as trustee. The Corporation
as receiver shall coordinate with SIPC as trustee to post the notice on
SIPC's public Web site in addition to the publication procedures set
forth in Sec. 380.33.
(2) Procedures for filing a claim. The Corporation as receiver
shall consult with SIPC, as trustee, regarding a claim form and filing
instructions with respect to claims against the Corporation as receiver
for a covered broker or dealer, and such information shall be provided
on SIPC's public Web site in addition to the Corporation's public Web
site. Any such claim form shall contain a provision permitting a
claimant to claim status as a customer of the broker or dealer, if
applicable.
(3) Claims bar date. The Corporation as receiver shall establish a
claims bar date in accordance with 12 U.S.C. 5390(a)(2)(B)(i) and any
regulations promulgated thereunder by which date creditors of a covered
broker or dealer, including all customers of the covered broker or
dealer, shall present their claims, together with proof. The claims bar
date for a covered broker or dealer shall be the date following the
expiration of the six-month period beginning on the date a notice to
creditors to file their claims is first published in accordance with 12
U.S.C. 5390(a)(2)(B)(i) and any regulations promulgated thereunder. Any
claim filed after the claims bar date shall be disallowed, and such
disallowance shall be final, as provided by 12 U.S.C. 5390(a)(3)(C)(i)
and any regulations promulgated thereunder, except that a claim filed
after the claims bar date shall be considered by the receiver as
provided by 12 U.S.C. 5390(a)(3)(C)(ii) and any regulations promulgated
thereunder. In accordance with section 8(a)(3) of SIPA, 15 U.S.C.
78fff-2(a)(3), any claim for net equity filed more than sixty days
after the date the notice to creditors to file claims is first
published need not be paid or satisfied in whole or in part out of
customer property and, to the extent such claim is paid by funds
advanced by SIPC, it shall be satisfied in cash or securities, or both,
as SIPC, as trustee, determines is most economical to the receivership
estate.
(c) Decision period. The Corporation as receiver of a covered
broker or dealer shall notify a claimant whether it allows or disallows
the claim, or any portion of a claim or any claim of a security,
preference, set-off, or priority, within the 180-day period set forth
in 12 U.S.C. 5390(a)(3)(A) and any regulations promulgated thereunder
(as such 180-day period may be extended by written agreement as
provided therein) or within the 90-day period set forth in 12 U.S.C.
5390(a)(5)(B) and any regulations promulgated thereunder, whichever is
applicable. In accordance with paragraph (a) of this section, the
Corporation, as receiver, shall issue the notice required by this
paragraph (c), which shall utilize the determination made by SIPC, as
trustee, in a manner consistent with SIPC's customary practices in a
liquidation under SIPA, with respect to any claim for net equity or
customer name securities. The process established herein for the
determination, within the 180-day period set forth in 12 U.S.C.
5390(a)(3)(A) and any regulations promulgated thereunder (as such 180-
day period may be extended by written agreement as provided therein),
of claims by customers of a covered broker or dealer for customer
property or customer name securities shall constitute the exclusive
process for the determination of such claims, and any procedure for
expedited relief established pursuant to 12 U.S.C. 5390(a)(5) and any
regulations promulgated thereunder shall be inapplicable to such
claims.
(d) Judicial review. The claimant may seek a judicial determination
of any claim disallowed, in whole or in part, by the Corporation as
receiver, including any claim disallowed based upon any
determination(s) of SIPC as trustee made pursuant to Sec. 380.64(a),
by the appropriate district or territorial court of the United States
in accordance with 12 U.S.C. 5390(a)(4) or (5), whichever is
applicable, and any regulations promulgated thereunder.

Sec. 380.65 Priorities for unsecured claims against a covered broker
or dealer.

Allowed claims not satisfied pursuant to Sec. 380.63(d), including
allowed claims for net equity to the extent not satisfied after final
allocation of customer property in accordance with Sec. 380.64(a)(3),
shall be paid in accordance with the order of priority set forth in
Sec. 380.21 subject to the following adjustments:
(a) Administrative expenses of SIPC incurred in performing its
responsibilities as trustee for a covered broker or dealer shall be
included as administrative expenses of the receiver as defined in Sec.
380.22 and shall be paid pro rata with such expenses in accordance with
Sec. 380.21(c).
(b) Amounts paid by the Corporation to customers or SIPC shall be
included as amounts owed to the United States as defined in Sec.
380.23 and shall be paid pro rata with such amounts in accordance with
Sec. 380.21(c).
(c) Amounts advanced by SIPC for the purpose of satisfying customer
claims for net equity shall be paid following the payment of all
amounts owed to the United States pursuant to Sec. 380.21(a)(3) but
prior to the payment of any other class or priority of claims described
in Sec. 380.21(a)(4) through (11).

Sec. 380.66 Administrative expenses of SIPC.

(a) In carrying out its responsibilities, SIPC, as trustee for a
covered broker or dealer, may utilize the services of third parties,
including private attorneys, accountants, consultants, advisors,
outside experts, and other third party professionals. SIPC shall have
an allowed claim for administrative expenses for any amounts paid by
SIPC for such services to the extent that such services are available
in the private sector, and utilization of such services is practicable,
efficient, and cost effective. The term administrative expenses of SIPC
includes the costs and expenses of such attorneys, accountants,
consultants, advisors, outside experts, and other third party
professionals, and other expenses that would be allowable to a third
party trustee under 15 U.S.C. 78eee(b)(5)(A), including the costs and
expenses of SIPC employees that would be allowable pursuant to 15
U.S.C. 78fff(e).
(b) The term administrative expenses of SIPC shall not include
advances from SIPC to satisfy customer claims for net equity.

Sec. 380.67 Qualified financial contracts.

The rights and obligations of any party to a qualified financial
contract to which a covered broker or dealer is a party shall be
governed exclusively by 12 U.S.C. 5390, including the limitations and
restrictions contained in 12 U.S.C. 5390(c)(10)(B), and any regulations
promulgated thereunder.

Securities and Exchange Commission

17 CFR Part 302

Authority and Issuance

For the reasons stated in the proposing release, the Securities and
Exchange Commission proposes to amend 17 CFR 302 as follows:
0
3. Add part 302 to read as follows:

PART 302--ORDERLY LIQUIDATION OF COVERED BROKERS OR DEALERS

Sec.

[[Page 10817]]

302.100 Definitions.
302.101 Appointment of receiver and trustee for covered broker or
dealer.
302.102 Notice and application for protective decree for covered
broker or dealer.
302.103 Bridge broker or dealer.
302.104 Claims of customers and other creditors of a covered broker
or dealer.
302.105 Priorities for unsecured claims against a covered broker or
dealer.
302.106 Administrative expenses of SIPC.
302.107 Qualified financial contracts.

Authority: 12 U.S.C. 5385(h).

Sec. 302.100 Definitions.

For purposes of Sec. Sec. 302.100 through 302.107, the following
terms shall have the following meanings:
(a) Appointment date. The term appointment date means the date of
the appointment of the Corporation as receiver for a covered financial
company that is a covered broker or dealer. This date shall constitute
the filing date as that term is used in SIPA.
(b) Bridge broker or dealer. The term bridge broker or dealer means
a new financial company organized by the Corporation in accordance with
12 U.S.C. 5390(h) for the purpose of resolving a covered broker or
dealer.
(c) Commission. The term Commission means the Securities and
Exchange Commission.
(d) Covered broker or dealer. The term covered broker or dealer
means a covered financial company that is a qualified broker or dealer.
(e) Customer. The term customer of a covered broker or dealer shall
have the same meaning as in 15 U.S.C. 78lll(2) provided that the
references therein to debtor shall mean the covered broker or dealer.
(f) Customer name securities. The term customer name securities
shall have the same meaning as in 15 U.S.C. 78lll(3) provided that the
references therein to debtor shall mean the covered broker or dealer
and the references therein to filing date shall mean the appointment
date.
(g) Customer property. The term customer property shall have the
same meaning as in 15 U.S.C. 78lll(4) provided that the references
therein to debtor shall mean the covered broker or dealer.
(h) Net equity. The term net equity shall have the same meaning as
in 15 U.S.C. 78lll(11) provided that the references therein to debtor
shall mean the covered broker or dealer and the references therein to
filing date shall mean the appointment date.
(i) Qualified broker or dealer. The term qualified broker or dealer
means a broker or dealer that:
(1) Is registered with the Commission under section 15(b) of the
Securities Exchange Act of 1934 (15 U.S.C. 78o(b)); and
(2) Is a member of SIPC.
(j) SIPA. The term SIPA means the Securities Investor Protection
Act of 1970, 15 U.S.C. 78aaa-lll.
(k) SIPC. The term SIPC means the Securities Investor Protection
Corporation.
(l) Corporation. The term Corporation means the Federal Deposit
Insurance Corporation.
(m) Dodd-Frank Act. The term Dodd-Frank Act means the Dodd-Frank
Wall Street Reform and Consumer Protection Act, Public Law 111-203, 124
Stat. 1376, enacted July 21, 2010.

Sec. 302.101 Appointment of receiver and trustee for covered broker
or dealer.

Upon the appointment of the Corporation as receiver for a covered
broker or dealer, the Corporation shall appoint SIPC to act as trustee
for the covered broker or dealer.

Sec. 302.102 Notice and application for protective decree for covered
broker or dealer.

(a) SIPC and the Corporation, upon consultation with the
Commission, shall jointly determine the terms of a notice and
application for a protective decree that will be filed promptly with
the Federal district court for the district within which the principal
place of business of the covered broker or dealer is located; provided
that if a case or proceeding under SIPA with respect to such covered
broker or dealer is then pending, then such notice and application for
a protective decree will be filed promptly with the Federal district
court in which such case or proceeding under SIPA is pending. If such
notice and application for a protective decree is filed on a date other
than the appointment date, such filing shall be deemed to have occurred
on the appointment date for the purposes of Sec. Sec. 302.100 through
302.107.
(b) A notice and application for a protective decree may, among
other things, provide for notice--
(1) Of the appointment of the Corporation as receiver and the
appointment of SIPC as trustee for the covered broker or dealer; and
(2) That the provisions of Title II of the Dodd-Frank Act and any
regulations promulgated thereunder may apply, including without
limitation the following:
(i) Any existing case or proceeding with respect to a covered
broker or dealer under the Bankruptcy Code or SIPA shall be dismissed
effective as of the appointment date and no such case or proceeding may
be commenced with respect to a covered broker or dealer at any time
while the Corporation is receiver for such covered broker or dealer;
(ii) The revesting of assets in a covered broker or dealer to the
extent that they have vested in any entity other than the covered
broker or dealer as a result of any case or proceeding commenced with
respect to the covered broker or dealer under the Bankruptcy Code,
SIPA, or any similar provision of State liquidation or insolvency law
applicable to the covered broker or dealer; provided that any such
revesting shall not apply to assets held by the covered broker or
dealer, including customer property, transferred prior to the
appointment date pursuant to an order entered by the bankruptcy court
presiding over the case or proceeding with respect to the covered
broker or dealer;
(iii) The request of the Corporation as receiver for a stay in any
judicial action or proceeding (other than actions dismissed in
accordance with paragraph (b)(2)(i) of this section) in which the
covered broker or dealer is or becomes a party for a period of up to 90
days from the appointment date;
(iv) Except as provided in paragraph (b)(2)(v) of this section with
respect to qualified financial contracts, no person may exercise any
right or power to terminate, accelerate or declare a default under any
contract to which the covered broker or dealer is a party (and no
provision in any such contract providing for such default, termination
or acceleration shall be enforceable), or to obtain possession of or
exercise control over any property of the covered broker or dealer or
affect any contractual rights of the covered broker or dealer without
the consent of the Corporation as receiver of the covered broker or
dealer upon consultation with SIPC during the 90-day period beginning
from the appointment date; and
(v) The exercise of rights and the performance of obligations by
parties to qualified financial contracts with the covered broker or
dealer may be affected, stayed, or delayed pursuant to the provisions
of Title II of the Dodd-Frank Act (including 12 U.S.C. 5390(c)) and the
regulations promulgated thereunder.

Sec. 302.103 Bridge broker or dealer.

[[Page 10818]]

(b) If the Corporation establishes one or more bridge brokers or
dealers with respect to a covered broker or dealer, then, subject to
paragraph (d) of this section, the Corporation as receiver for such
covered broker or dealer shall transfer all customer accounts and all
associated customer name securities and customer property to such
bridge brokers or dealers unless the Corporation determines, after
consultation with the Commission and SIPC, that:
(1) The customer accounts, customer name securities, and customer
property are likely to be promptly transferred to one or more qualified
brokers or dealers such that the use of a bridge broker or dealer would
not facilitate such transfer to one or more qualified brokers or
dealers; or
(2) The transfer of such customer accounts to a bridge broker or
dealer would materially interfere with the ability of the Corporation
to avoid or mitigate serious adverse effects on financial stability or
economic conditions in the United States.
(c) The Corporation, as receiver for such covered broker or dealer,
also may transfer any other assets and liabilities of the covered
broker or dealer (including non-customer accounts and any associated
property and any assets and liabilities associated with any trust or
custody business) to such bridge brokers or dealers as the Corporation
may, in its discretion, determine to be appropriate in accordance with,
and subject to the requirements of, 12 U.S.C. 5390(h), including 12
U.S.C. 5390(h)(1) and 5390(h)(5), and any regulations promulgated
thereunder.
(d) In connection with customer accounts transferred to the bridge
broker or dealer pursuant to paragraph (b) of this section, claims for
net equity shall not be transferred but shall remain with the covered
broker or dealer. Customer property transferred from the covered broker
or dealer, along with advances from SIPC, shall be allocated to
customer accounts at the bridge broker or dealer in accordance with
Sec. 302.104(a)(3). Such allocations initially may be based upon
estimates, and such estimates may be based upon the books and records
of the covered broker or dealer or any other information deemed
relevant in the discretion of the Corporation as receiver, in
consultation with SIPC, as trustee. Such estimates may be adjusted from
time to time as additional information becomes available. With respect
to each account transferred to the bridge broker or dealer pursuant to
paragraph (b) or (c) of this section, the bridge broker or dealer shall
undertake the obligations of a broker or dealer only with respect to
property transferred to and held by the bridge broker or dealer, and
allocated to the account as provided in Sec. 302.104(a)(3), including
any customer property and any advances from SIPC. The bridge broker or
dealer shall have no obligations with respect to any customer property
or other property that is not transferred from the covered broker or
dealer to the bridge broker or dealer. The transfer of customer
property to such an account shall have no effect on calculation of the
amount of the affected accountholder's net equity, but the value, as of
the appointment date, of the customer property and advances from SIPC
so transferred shall be deemed to satisfy any such claim, in whole or
in part.
(e) The transfer of assets or liabilities held by a covered broker
or dealer, including customer accounts and all associated customer name
securities and customer property, assets and liabilities held by a
covered broker or dealer for any non-customer creditor, and assets and
liabilities associated with any trust or custody business, to a bridge
broker or dealer, shall be effective without any consent,
authorization, or approval of any person or entity, including but not
limited to, any customer, contract party, governmental authority, or
court.
(f) Any succession to or assumption by a bridge broker or dealer of
rights, powers, authorities, or privileges of a covered broker or
dealer shall be effective without any consent, authorization, or
approval of any person or entity, including but not limited to, any
customer, contract party, governmental authority, or court, and any
such bridge broker or dealer shall upon its organization by the
Corporation immediately and by operation of law--
(1) Be established and deemed registered with the Commission under
the Securities Exchange Act of 1934;
(2) Be deemed to be a member of SIPC; and
(3) Succeed to any and all registrations and memberships of the
covered broker or dealer with or in any self-regulatory organizations.
(g) Except as provided in paragraph (f) of this section, the bridge
broker or dealer shall be subject to applicable Federal securities laws
and all requirements with respect to being a member of a self-
regulatory organization and shall operate in accordance with all such
laws and requirements and in accordance with its articles of
association; provided, however, that the Commission may, in its
discretion, exempt the bridge broker or dealer from any such
requirements if the Commission deems such exemption to be necessary or
appropriate in the public interest or for the protection of investors.
(h) At the end of the term of existence of a bridge broker or
dealer, any proceeds that remain after payment of all administrative
expenses of such bridge broker or dealer and all other claims against
such bridge broker or dealer shall be distributed to the receiver for
the related covered broker or dealer.

Sec. 302.104 Claims of customers and other creditors of a covered
broker or dealer.

(a) Trustee's role. (1) SIPC, as trustee for a covered broker or
dealer, shall determine customer status, claims for net equity, claims
for customer name securities, and whether property of the covered
broker or dealer qualifies as customer property. SIPC, as trustee for a
covered broker or dealer, shall make claims determinations in
accordance with SIPA and with paragraph (a)(3) of this section, but
such determinations, and any claims related thereto, shall be governed
by the procedures set forth in paragraph (b) of this section.
(2) SIPC shall make advances in accordance with, and subject to the
limitations imposed by, 15 U.S.C. 78fff-3. Where appropriate, SIPC
shall make such advances by delivering cash or securities to the
customer accounts established at the bridge broker or dealer.
(3) Customer property held by a covered broker or dealer shall be
allocated as follows:
(i) First, to SIPC in repayment of advances made by SIPC pursuant
to 12 U.S.C. 5385(f) and 15 U.S.C. 78fff-3(c)(1), to the extent such
advances effected the release of securities which then were apportioned
to customer property pursuant to 15 U.S.C. 78fff(d);
(ii) Second, to customers of such covered broker or dealer, or in
the case that customer accounts are transferred to a bridge broker or
dealer, then to such customer accounts at a bridge broker or dealer,
who shall share ratably in such customer property on the basis and to
the extent of their respective net equities;
(iii) Third, to SIPC as subrogee for the claims of customers; and
(iv) Fourth, to SIPC in repayment of advances made by SIPC pursuant
to 15 U.S.C. 78fff-3(c)(2).
(4) The determinations and advances made by SIPC as trustee for a
covered broker or dealer under Sec. Sec. 302.100 through 302.107 shall
be made in a manner consistent with SIPC's customary practices under
SIPA. The allocation of customer property, advances from SIPC, and
delivery of

[[Page 10819]]

customer name securities to each customer or to its customer account at
a bridge broker or dealer, in partial or complete satisfaction of such
customer's net equity claims as of the close of business on the
appointment date, shall be in a manner, including form and timing, and
in an amount at least as beneficial to such customer as would have been
the case had the covered broker or dealer been liquidated under SIPA.
Any claims related to determinations made by SIPC as trustee for a
covered broker or dealer shall be governed by the procedures set forth
in paragraph (b) of this section.
(b) Receiver's role. Any claim shall be determined in accordance
with the procedures set forth in 12 U.S.C. 5390(a)(2) through (5) and
the regulations promulgated by the Corporation thereunder, provided
however, that--
(1) Notice requirements. The notice of the appointment of the
Corporation as receiver for a covered broker or dealer shall also
include notice of the appointment of SIPC as trustee. The Corporation
as receiver shall coordinate with SIPC as trustee to post the notice on
SIPC's public Web site in addition to the publication procedures set
forth in 12 CFR 380.33.
(2) Procedures for filing a claim. The Corporation as receiver
shall consult with SIPC, as trustee, regarding a claim form and filing
instructions with respect to claims against the Corporation as receiver
for a covered broker or dealer, and such information shall be provided
on SIPC's public Web site in addition to the Corporation's public Web
site. Any such claim form shall contain a provision permitting a
claimant to claim status as a customer of the broker or dealer, if
applicable.
(3) Claims bar date. The Corporation as receiver shall establish a
claims bar date in accordance with 12 U.S.C. 5390(a)(2)(B)(i) and any
regulations promulgated thereunder by which date creditors of a covered
broker or dealer, including all customers of the covered broker or
dealer, shall present their claims, together with proof. The claims bar
date for a covered broker or dealer shall be the date following the
expiration of the six-month period beginning on the date a notice to
creditors to file their claims is first published in accordance with 12
U.S.C. 5390(a)(2)(B)(i) and any regulations promulgated thereunder. Any
claim filed after the claims bar date shall be disallowed, and such
disallowance shall be final, as provided by 12 U.S.C. 5390(a)(3)(C)(i)
and any regulations promulgated thereunder, except that a claim filed
after the claims bar date shall be considered by the receiver as
provided by 12 U.S.C. 5390(a)(3)(C)(ii) and any regulations promulgated
thereunder. In accordance with section 8(a)(3) of SIPA, 15 U.S.C.
78fff-2(a)(3), any claim for net equity filed more than sixty days
after the date the notice to creditors to file claims is first
published need not be paid or satisfied in whole or in part out of
customer property and, to the extent such claim is paid by funds
advanced by SIPC, it shall be satisfied in cash or securities, or both,
as SIPC, as trustee, determines is most economical to the receivership
estate.
(c) Decision period. The Corporation as receiver of a covered
broker or dealer shall notify a claimant whether it allows or disallows
the claim, or any portion of a claim or any claim of a security,
preference, set-off, or priority, within the 180-day period set forth
in 12 U.S.C. 5390(a)(3)(A) and any regulations promulgated thereunder
(as such 180-day period may be extended by written agreement as
provided therein) or within the 90-day period set forth in 12 U.S.C.
5390(a)(5)(B) and any regulations promulgated thereunder, whichever is
applicable. In accordance with paragraph (a) of this section, the
Corporation, as receiver, shall issue the notice required by this
paragraph (c), which shall utilize the determination made by SIPC, as
trustee, in a manner consistent with SIPC's customary practices in a
liquidation under SIPA, with respect to any claim for net equity or
customer name securities. The process established herein for the
determination, within the 180-day period set forth in 12 U.S.C.
5390(a)(3)(A) and any regulations promulgated thereunder (as such 180-
day period may be extended by written agreement as provided therein),
of claims by customers of a covered broker or dealer for customer
property or customer name securities shall constitute the exclusive
process for the determination of such claims, and any procedure for
expedited relief established pursuant to 12 U.S.C. 5390(a)(5) and any
regulations promulgated thereunder shall be inapplicable to such
claims.
(d) Judicial review. The claimant may seek a judicial determination
of any claim disallowed, in whole or in part, by the Corporation as
receiver, including any claim disallowed based upon any
determination(s) of SIPC as trustee made pursuant to Sec. 302.104(a),
by the appropriate district or territorial court of the United States
in accordance with 12 U.S.C. 5390(a)(4) or (5), whichever is
applicable, and any regulations promulgated thereunder.

Sec. 302.105 Priorities for unsecured claims against a covered broker
or dealer.

Allowed claims not satisfied pursuant to Sec. 302.103(d),
including allowed claims for net equity to the extent not satisfied
after final allocation of customer property in accordance with Sec.
302.104(a)(3), shall be paid in accordance with the order of priority
set forth in 12 CFR 380.21 subject to the following adjustments:
(a) Administrative expenses of SIPC incurred in performing its
responsibilities as trustee for a covered broker or dealer shall be
included as administrative expenses of the receiver as defined in 12
CFR 380.22 and shall be paid pro rata with such expenses in accordance
with 12 CFR 380.21(c).
(b) Amounts paid by the Corporation to customers or SIPC shall be
included as amounts owed to the United States as defined in 12 CFR
380.23 and shall be paid pro rata with such amounts in accordance with
12 CFR 380.21(c).
(c) Amounts advanced by SIPC for the purpose of satisfying customer
claims for net equity shall be paid following the payment of all
amounts owed to the United States pursuant to 12 CFR 380.21(a)(3) but
prior to the payment of any other class or priority of claims described
in 12 CFR 380.21(a)(4) through (11).

Sec. 302.106 Administrative expenses of SIPC.

Sec. 302.107 Qualified financial contracts.

The rights and obligations of any party to a qualified financial
contract to

[[Page 10820]]

which a covered broker or dealer is a party shall be governed
exclusively by 12 U.S.C. 5390, including the limitations and
restrictions contained in 12 U.S.C. 5390(c)(10)(B), and any regulations
promulgated thereunder.

Dated: February 17, 2016.

By the Securities and Exchange Commission.
Brent J. Fields,
Secretary.
Dated this 17th day of February, 2016.

By order of the Board of Directors.

Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. 2016-03874 Filed 3-1-16; 8:45 am]
BILLING CODE 8011-01-P; 6714-01-P

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